Account Current -
A Running Statement Of Mutual Transactions

   An Account Current is a running statement showing mutual transactions between two parties for a given period of time together with the interest due or payable. It includes some additional columns for recording due date, number of days, interest or interest product etc. Here, all transactions are recorded date wise.

   An account Current is a copy of the debtors ledger account in the books of the creditor.

   An Account Current is to be rendered by one person to another periodically when interest is to be computed on the amount of each transaction in order to reflect the net value of amount receivable or payable including interest.

Preparation Of Account Current:

   An account current is prepared generally in the following situations:

  1. When transactions frequent take place between two parties and interest is charged on outstanding balance at an agreed rate.
  2. In case of consignment business, when goods are sold by the consignee and the account is settled at the end of the period. And as per the consignment agreement, interest is to be paid by the consignee on outstanding balance.
  3. In case of joint venture, when each co-venturer is entitled to interest on their investment and no separate book is maintained for the joint venture
  4. When frequent transactions take place between the banker and his customers.

Method of Calculation of Interest On Account Current:

1. Ordinary Method:

      Under this method interest is calculated separately for each item for the number of days from the date next to the date of the transaction to the closing date of the period. Here, the opening balance is considered while calculating the total number of days. But no interest is computed on the closing balance.

2. Product Method:

      Under this method, the number of days is calculated from the date next to the date of each transaction and the product is obtained by multiplying the amount of the transaction with the number of days. (In case of opening balance, the number of days includes the opening date). Here interest is calculated for one day on the balance of the product of debit side and credit side and such interest is entered in the amount column of the side where the product is heavier. Here, it is to be noted that interest is calculated on the balance of the products for one month. And also it is to be noted that no interest is calculated on the closing balance.

3. Epoque Method:

      Under this method, interest is computed from the beginning of the period to the date of each item. Thus, no interest is charged on the opening balance. But interest is charged for the whole period on the closing balance.

4. Red Ink Interest:

      Under this method, interest is computed in an account current on the amount of a transaction from the date of a transaction to the closing date of the period. In case of bills and post dated invoices, the due date may fall either within the accounting period or after the close of the accounting period. If the due date fall within the accounting period, the ordinary procedure is followed; but if the due date fall after the close of the accounting period, interest is calculated from the closing date and such due date is customarily written in red ink. This interest is hence known as "Red Ink Interest".