DEPARTMENT OF TECHNICAL EDUCATION

ANDHRA PRADESH
Name : B. VIJAYA KUMAR
Designation : Lecturer
Branch : Commercial & Computer
Practice (CCP)
Institute : GPW/Guntur
Year/Sem : III Sem (C-05)
Subject : ACCOUNTANCY-II
Sub-Code : CCP-302
Topic : ACCOUNT CURRENT
Duration : 50 minutes
Sub Topic :RED INK INTEREST
Teaching Aids : PPT ANIMATION

CCP302.18
1
 Objective
Account Current
At the end of this class, you will be able to
know

RED INK INTEREST

CCP302.19 2
Recap
In the earlier classes, you learnt that there are
FIVE methods for calculation of Interest, namely,

1. Interest Tables Method

2. Product Method
3. Interest Numbers Method
4. Periodical Balance Method
5. Epoque Method

CCP302.19 3
 Recap contd.

METHODS OF CALCULATING INTEREST

INTEREST PRODUCT INTEREST PERIODICAL EPOQUE

TABLES METHOD NUMBERS BALANCE METHOD
METHOD METHOD METHOD

CCP302.19 4
 Recap contd.
5. Epoque Method
 This method is just REVERSE of Product Method

 Interest calculation from COMMENCEMENT of

Account Current period to EACH ITEM’S DATE

CCP302.19 5
Recap contd.
5. Epoque Method

 For INTEREST CALCULATION, both extreme

dates, i.e., Opening Day of Account Current and
DATE of each item, are taken into account

 NO INTEREST charged/credited on Opening

Balance

CCP302.19 6
Recap contd.

5. Epoque Method

 For INTEREST CALCULATION, both extreme

dates, i.e., Opening Day of Account Current and
DATE of each item, are taken into account

 This is what we did for Opening Balance in

PRODUCT method

CCP302.19 7
Recap contd.

5. Epoque Method

 INTEREST on CLOSING BALANCE (before

calculating interest) is CHARGED for WHOLE
PERIOD of Account Current

 Afterwards, INTEREST is calculated for ONE

DAY at an AGREED RATE

CCP302.19 8
Red Ink Interest
 Sometimes, DUE DATE falls after CLOSING
PERIOD of Account Current

 In such cases, NO INTEREST is allowed

CCP302.19 9
Red Ink Interest

 Instead, INTEREST should be deducted for NO. of

DAYS by which DUE DATE falls after CLOSING
DATE of Account Current

CCP302.19 10
Red Ink Interest
Example:1
 Date of rendering Account Current – June 30
X gave 2 months’ acceptance to Y for Rs.500 – June 15
DUE DATE of the Bill – August 18 (including 3 days of
Grace)
Therefore, INTEREST on Rs.500 for 49 days
(July 31 days + August 18 days) should be deducted
From Account Current (Debit/Credit side on which Bill
is entered)

CCP302.19 11
Red Ink Interest
 E.g. 1 (continued):

Product of this item (Rs.500 x 49) shown as a MINUS

Product and deducted from TOTALS of PRODUCTS
on DEBIT/CREDIT side of Account Current where
Bills are recorded

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Red Ink Interest

 In actual practice, PRODUCT of such ITEM (whose

Date falls after the closing date of Account Current) is
Written in RED INK, it is called RED INK INTEREST

CCP302.19 13
Summary :
Red Ink Interest arises when the due date of a
Transaction
 falls after the closing date of preparation
Of Account Current,
 for which Interest should be Deducted
 for the excess number of days
 beyond AC’s Closing date

CCP302.19 14
Summary contd.
 Since the amount of Interest is written with RED INK,
it is called “RED INK INTEREST”

 Purpose of recording Interest with RED INK is

 to ALERT the Accountant to deduct the Product Amount
from Account Current.

CCP302.19 15
Quiz
1. “Red Ink Interest” is called so, because it is
recorded:

a) with Accountant’s blood.

b) using Red Ink.
c) in a RED covered book.
d) None of the above.

CCP302.19 16
Quiz
2. Purpose of recording Interest with “Red Ink” is :

a) to alert Accountant to make deduction

b) because “Red Ink” is cheaper.
c) to make it attractive.
d) None of the above.

CCP302.19 17
Frequently Asked Questions:

1. Briefly explain the meaning and importance of

RED INK INTEREST.

CCP302.19 18
Assignment
1.Visit any large size business establishment in your
area doing banking/consignment business.
Find out from the Accountant whether they are
recording Red Ink Interest in their books of
accounts, as you have learnt in class.

CCP302.19 19
Assignment
2) For more information on this topic, please refer to:
a) “Introduction to Accountancy” by T.S. Grewal
b) “Advanced Accountancy” by Jain & Narang
c) “Introduction to Accountancy” by S.N. Maheswari
d) “Advanced Accountancy” by Shukla & Grewal
e) “Advanced Accountancy” by Gupta & Radhaswamy
f) “Principles & Practice of Book-Keeping” by
Ch. Shanmukhaswamy
g) Any other text book suggested by your teacher
h) Previous years’ exam question papers of SBTET

CCP302.19 20