| $1,000 × .06 × 12 | |
| ————— | = $2 |
| 360 |
The incorrectness resulting from the commercial method (using 360 days as denominator) usually is negligible and is fully justified by the economy of time in computation. It may be noted that under this practice the amount of annual interest is ¹/₇₂ more than under the method used by the government.
4. When paper is discounted by a bank, even though its term be given in months, the bank invariably counts the exact number of days in estimating the amount of the discount. Take a note dated June 25 with a term of 3 months and due therefore on September 25, but discounted at the bank on July 25. The term of discount, instead of being 2 months, would be for 62 days, a gain to the bank of 2 days on a 360-day basis.
Short Methods of Interest Computation.—In calculating interest or discount, the so-called 12% or 6% method seems the easiest of application. Its base is taken as $1. In the 12% method the interest for a year is therefore 12 cents, for a month 1 cent, and for a day ⅓ mill. In the 6% method, the interest for a year is 6 cents, for a month ½ cent, and for a day ⅙ mill. Using these fractions with the years, months, and days as multipliers, the result is the interest on $1 for the given period. This result multiplied by the face of the note gives the required interest, assuming that the interest rate is 12% or 6%.
A variation of the above gives the following rule, somewhat easier to apply. Reduce the time to days—using a 360-day year, 30-day month basis; multiply the time by the face, point off three places (i.e., treat the product as mills), and divide by 3 or 6 according as the calculation is on a 12% or 6% basis. If the basis used is 6%, but the actual rate is different, add or subtract whatever aliquot part the given rate is more or less than 6%; i.e., if the rate is 8%, add ²/₆ or ⅓; if 5%, subtract ⅙; etc. The following example will illustrate:
A note for $1,000 dated June 10, 19—, for 4 months, with interest at 7%, was discounted July 30 at 8%. Find the net proceeds. The note when due will be worth $1,000 plus 4 months’ interest at 7%. That becomes the basis for the discount calculation.
Applying the 6% method:
| 4 months = | 120 | days |
| Multiplied by | 1,000 | (face of note) |
| 120,000 | ||
| Marking off 3 points | 120 | |
| Take ¹/₆ (index for 1 day) | ¹/₆ | |
| 20 | = interest @ 6% | |
| Add ¹/₆ | 3.33 | |
| 23.33 | = interest @ 7% | |
| Add | 1,000 | |
| Value of note on October 10 | 1,023.33 | |
| This amount (1,023.33) is the basis on | ||
| which the discount is to be figured. | ||
| Multiply by the term of discount (72 days[2]) | 1,023.33 | |
| 72 | ||
| 2,046.66 | ||
| 71,633.1 | ||
| 73,679.76 | ||
| Marking off 3 points | 73.68 | |
| Take ¹/₆ (day index) | ¹/₆ | |
| 12.28 | = discount @ 6% | |
| Add ²/₆ or ⅓ | 4.09 | |
| 16.37 | = discount @ 8% | |
| Value of note on October 10 | 1,023.33 | |
| Less discount | 16.37 | |
| Net proceeds on July 30 | 1,006.96 | |
CHAPTER XXIV
METHODS OF POSTING
The Journal and Ledger Records Differentiated—Posting.—When a correct and complete record of business transactions has been made in the various journals, practically all the current information needed by the business has been secured. However, because this information is recorded in chronological order, it is not available for use. It requires sorting, grouping, and indexing. To meet this requirement the original chronological record must be transferred to other records which provide for the desired grouping. The separation of the general journal into journals for different classes of transactions such as sales, purchases, and cash, results in making certain kinds of information somewhat more available, but more than this is required for business management. The original records must be grouped and summarized under proper account titles, so that the total results for the period may be had under review at one time. The book containing these account titles is called the ledger, and the transfer of the original record to the ledger is called posting.