United States Rule.—The United States Supreme Court has ordered the application of the partial payments somewhat differently. The first partial payment must first be applied to the payment of the accrued interest on the principal up to the date of the first payment. Any excess shall be applied to a reduction of the principal. Each succeeding payment is similarly applied first to cancellation of accrued interest on each new principal and then to a reduction of the principal. In case any payment is insufficient to meet the accrued interest, the payment is held in reserve, the principal remaining unchanged until a payment or payments are made which added to the previously reserved payment or payments are sufficient to cancel all interest accrued to that date. Any excess is used to retire the principal.
Interest on Daily and Savings Bank Balances.—In the handling of balances between banks, interest on daily balances is usually figured in the settlement. Calculation is on a 365-day basis in the larger banks. Banks frequently allow large depositors a low rate of interest on daily balances maintained above a certain fixed minimum. Take the following account:
| X. Z. & Co. | |||||
| Date | Dr. | Cr. | Balance | Interest Base | Interest |
| Jan. 2 | 1,500 | 500 | |||
| 3 | 300 | 500 | 1,700 | 700 | |
| 4 | 800 | 100 | 1,000 | ||
| 5 | 400 | 600 | 1,200 | 200 | |
| 6 | 500 | 400 | 1,100 | 100 | |
| 7 | 700 | 1,100 | 1,500 | 500 | .11 |
| 2,000 | |||||
In the above account interest is allowed on all amounts above $1,000 at the rate of 2%. If settlement is periodical, interest may be calculated on the total of the “interest base” column for one day. Usually, however, if a monthly settlement basis is used, the total minimum balance for the month is subtracted from the total of the “balance” column, and the remainder is the interest base. In savings banks no interest is allowed on amounts which have been withdrawn during the interest period, regardless of how long the sum may have been on deposit previous to date of withdrawal. There is no uniform practice as to when deposits shall begin to draw interest, in some banks at the beginning of the month after deposit, unless deposit is made on the first day of the current month; in others, not until the beginning of the next interest period. Great care must be exercised, therefore, in handling deposit and withdrawal dates.
Bank and True Discount.—Bank discount has been defined as the prepaid or collected interest on a discounted note, calculation being on the basis of the amount to be collected on the note at its maturity.
True discount is the difference between the face of a debt and its present worth, meaning by present worth that sum of money which placed at interest now will equal or be worth the face of the debt at maturity.
Proportion, Simple and Weighted.—Proportion is defined as an equality of ratios. Thus, if the ratio of a to b is the same as the ratio of c to d, this relation may be expressed as follows:
| a | = | c | |
| — | — | or a : b = c : d | |
| b | d | ||
the fractional form being preferred. In accounting it is often required to divide amounts in certain ratios, as when profits must be apportioned among partners, when insurance, taxes, and other expense charges must be distributed over departments, etc. This is usually entitled “apportioning.” It is not necessary to illustrate simple proportion, but a problem in “weighted proportion” will be given here.
Apportion an insurance charge of $1,000 over departments A, B, and C according to the property values in those departments, taking account of the fact that the rate on A is double that on B and C. The property values are: A $10,000; B $15,000; C $35,000.