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Finance charge calculation

Accounting CS uses the following formula to calculate the finance charge amount.
Finance charge =
 Daily Rate * Number of days outstanding
Daily Rate
 = (Invoice open amount * Finance charge rate)/ Number of days in the year
Number of days outstanding:
  • If using the transaction date (for Invoice and Finance charge type transactions)
    Number of days outstanding = Finance charge date - Transaction date
  • If using the due date (for Invoice and Finance charge type transactions)
    Number of days outstanding = Finance charge date - Due date
  • For previously assessed transactions
    Number of days outstanding = Finance charge date - Date fee was last assessed

Example

Finance charge rate
: 18%
Invoice date
: 4/30/11,
Due date
: 05/31/11,
Grace period
: 0 days
Invoice open balance:
 $500.00
Daily rate calculation:
 ($500 * 0.18) / 365 = 0.2466
  • Using the transaction date:
    • If the finance charge date is 07/1/11:
      Number of days outstanding (7/1/11 - 4/30/11) = 61 days
      Finance charge amount = 0.2466 * 61 = $15.04
    • If the finance charge date 08/1/11:
      Number of days outstanding (8/1/11 - 7/1/11) = 31 days
      Finance charge amount = 0.2466 * 31 = $7.64
  • Using the due date:
    • If the finance charge date is 07/1/11:
      Days outstanding (7/1/11 - 5/31/11) = 31 days
      Finance charge amount = 0.2466 * 31 = $7.64
    • If the finance charge date is 08/1/11:
      Days outstanding (8/1/11 - 7/1/11) = 31 days
      Finance charge amount = 0.2466 * 31 = $7.64

This article applies to:

  • Product: Accounting CS
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