Interest Calculation

Unit Overview
This unit discusses the interest calculation procedure.

Unit Objectives
After completing this unit, you will be able to:
Explain the basic options for calculating interest
• Explain the differences between account balance interest calculation and
item interest calculation
Identify data required for interest calculation
• Configure the SAP System to perform interest calculation
• Run the interest calculation program

Unit Contents
Lesson: Fundamentals of Interest Calculation.........................................224
Lesson: Configuring Interest Calculation................................................226
Exercise 15: Interest Calculation Data .............................................233

'

© 2006 SAP AG. All rights reserved. 223

Unit 5: Interest Calculation TFIN50 2

Lesson: Fundamentals of Interest Calculation

Lesson Overview
This lesson first discusses the fundamentals of interest calculation.

Lesson Objectives
After completing this lesson, you will be able to:
• Explain the basic options for calculating interest
• Explain the differences between account balance interest calculation and
item interest calculation

Business Example
The accountant responsible for reconciling bank accounts has requested a means
to verify interest charged by banks.

Figure 88: Types of Interest Calculation

There are two kinds of interest calculation in the SAP System:

• Account balance interest calculation is applied to the entire balance of a
GIL or customer account using a specific interest rate over a specified period
of time.
Interest on arrears is applied to individual items in accounts receivable or
accounts payable. A certain interest rate is applied to those items that are still
open or unpaid at a specified date.

224 © 2006 SAP AG. All rights reserved. 2006/Q2

TFIN50 2 Lesson: Fundamentals of Interest Calculation

Lesson Summary
You should now be able to:
• Explain the basic options for calculating interest
• Explain the differences between account balance interest calculation and
item interest calculation

2006/Q2 © 2006 SAP AG. All rights reserved. 225

Unit 5: Interest Calculation TFIN50 2

Lesson: Configuring Interest Calculation

Lesson Overview
This lesson presents the options for configuring interest calculation.

Lesson Objectives
After completing this lesson, you will be able to:
Identify data required for interest calculation
• Configure the SAP System to perform interest calculation
• Run the interest calculation program

Business Example
The accountant responsible for reconciling bank accounts has requested a means to
verify interest charged by banks.
Interest Calculation Configuration
Interest Calculation Indicator
• General terms
• Time-based terms
• Interest rates
Account Determination
Configuring the interest programs involves defining settings in five areas:
Interest calculation types define basic parameters used to calculate the interest. To
calculate interest for an account (G/L, customer, vendor), the master data for this
account must contain the appropriate interest calculation indicator.
General terms specify further parameters about how each interest calculation
indicator works.
Time-based terms set validity dates and relationships to interest rates.
Account determination establishes the accounts to which the results of an interest
calculation are posted (if necessary).

226 © 2006 SAP AG. All rights reserved. 2006/Q2

TFIN50_2 __________________________________________ Lesson: Configuring Interest Calculation

Figure 89: Interest Calculation Indicator

Interest calculation indicators establish basic parameters for the SAP System to use
when calculating interest. Note that each interest calculation indicator must be
assigned an interest calculation type, which specifies whether it is used for account
balance interest calculation or item interest calculation.
Every account for which the SAP System will calculate interest must have an
interest indicator in its master record.
The system requires a separate interest calculation indicator for each combination of
interest calculation frequency, calendar type, currency, interest rate, and so on.

Sets major parameters for interest calculation

Figure 90: General Terms

General terms set financial parameters for each interest calculation indicator.
For example, each indicator uses a specific calendar type that governs the interest
basis and period used to calculate interest.
Other general terms control maximum / minimum limits on interest postings, blocks
on outgoing payments, payment terms, and forms.

2006/Q2 © 2006 SAP AG. All rights reserved. 227

Unit 5: Interest Calculation TFIN50 2

Figure 91: Time-Dependent Interest Terms

Time-dependent interest terms differ from general terms in that they have validity
dates.
The time-dependent terms include, for example, the reference interest rate used in
the interest calculation, and the premium (or spread) above this reference rate. If
the 3-month LIBOR (London Interbank offered rate) rate is entered as the
reference interest rate and a premium of 3.00% is entered, then, with a LIBOR rate
of 3.75%, the interest calculation rate is equal to 6,75 %. If no reference interest
rate is entered, the premium rate .alone (in this case 3%) is used in the calculation.
The Amount From field specifies that the rate(s) apply only to balances above a
certain dollar amount. In conjunction with the sequence numbers, SAP System
users can use this function to build staggered interest rates, where the interest on
balances up to a certain amount is calculated at one rate, and that on balances
above this amount is calculated at a different one.

Figure 92: Reference Interest Rates

The SAP System allows the user to set up reference interest rates. In addition to
the interest calculation indicators, you can enter long and short text descriptions,
an effective date, a currency, and a financial center.

228 © 2006 SAP AG. All rights reserved. 2006/G

TFIN50_2 ___________________________________________Lesson: Configuring Interest Calculation

Figure 93: Reference Interest Rates: Values

Reference Short Text Valid from Interest Rate

LIB_6_EUR Libor 6 Month 01.08.2002 3,4265000
LIB_3_EUR Libor 3 Month 01.10.2002 3,1825000

For each reference interest rate, a value and a validity date are entered periodically.
Each rate value remains effective until a new validity date is entered.

Figure 94: Account Determination

Account determination in the SAP System starts with predefined business

transactions, which are accessed when the user runs the interest calculation
programs.
• Transaction 1030 in the example above occurs if the user wants to calculate the
interest for a certain period and debit the account for which interest is
calculated.
When the business transaction is combined with optional modifiers such as the
company code and interest calculation indicator, the system determines posting
keys and account symbols.

2006/Q2 © 2006 SAP AG. All rights reserved. 229

Unit 5: Interest Calculation TFIN50 2

Account symbols, when combined with modifiers such as the chart of accounts
and currency, refer to G/L (or vendor or customer) accounts where the interest
transactions are posted. Account symbols allow companies with different charts of
accounts and currencies to use the same business transactions.
Example: Business transactions
• Only one business transaction is relevant per account - 1000 Interest earned
posting - 2000 Interest paid posting
• "Splitting" is activated in the report selection screen. Two business
transactions can be displayed:
1010 Minus debit interest date in the past. Separate negative postings for a
period for which
• 2010 credit minus interest date in the past - Interest was already calculated.
1020 (plus) debit interest date in the past. Separate negative postings for a
period,
• 2020 (Plus) credit interest date in the past for which the interest rate has
already been calculated
• 1030 Interest calculation period Debit interest Separate Postings for selected
periods
2030 Interest calculation period credit interest

Figure 95: Running the Interest Calculation

230 © 2006 SAP AG. All rights reserved. 2006/Q

TFIN50_2 __________________________________________ Lesson: Configuring Interest Calculation

There are different ways to calculate interest:

• Item interest calculation (calculate interest on arrears):
- Calculate interest on cleared items only and post the interest
- Calculate interest on open and cleared items and post the interest
- Calculate interest on open and/or cleared items without posting the
interest
• Account balance interest calculation
Limit the number of accounts included in the interest calculation by entering
intervals or individual values for the chart of accounts, account number, company
code, interest calculation indicator, and business area. Generally, only accounts
with an interest calculation indicator in the master record and that are managed
with line item display are included.
You can also enter the interest calculation period, date of last interest run, and
other options.
The program displays an interest scale for each account. You can use the
summarization level to determine the degree of detail of the interest scale.
To monitor the interest calculation run (or for troubleshooting purposes), you can
have the system create a log. Limit the log to a few G/L accounts because the
printout can be lengthy.
Run the program as a background job. Set the Post interest settlements indicator so
that the interest is posted automatically.

2006/Q2 © 2006 SAP AG. All rights reserved. 231

Unit 5: Interest Calculation TFIN50

232 © 2006 SAP AG. All rights reserved. 2006/Q2

TFIN50_2___________________________________________ Lesson: Configuring Interest Calculation

Exercise 15: Interest Calculation Data

Exercise Objectives
After completing this exercise, you will be able to:
• Describe the interest calculation function in the SAP System
• Explain how to configure the system to calculate interest correctly and post
the results to the appropriate accounts.

Business Example
The accountant responsible for reconciling bank accounts has requested a means
to verify interest charged by banks. He has asked you to provide a demonstration
to show that the SAP System can meet his requirements.

Task 1:
True or false?

1. Account master data must contain an interest calculation indicator for

interest calculation to take place.
Determine whether this statement is true or false. n
True n False

2. On a given account, the SAP System cannot charge different interest rates
based on the dollar amounts of balances or items.
Determine whether this statement is true or false. D
True n False

3. You can configure the SAP System to calculate interest for customers or
vendors that owe you money. You cannot calculate interest, however, if you
owe your business partner money.
Determine whether this statement is true or false. a
True n False

Continued on next page

2006/Q2 © 2006 SAP AG. All rights reserved. 233

Unit 5: Interest Calculation _________________________________________________ TFIN50_2

Task 2:
Review the interest calculation functions and Customizing for interest calculation.

1. Name the two kinds of interest calculation the SAP System offers.

2. What information do you need to create a new interest calculation indicator?

Task 3:
Understand account determination for interest calculation.

1. What posting key is used for debit postings for business transaction 1030
(interest calculation period debit interest), in company code 1000, interest
indicator 01?

2. Credit postings?

Continued on next page

234 © 2006 SAP AG. All rights reserved. 2006/Q2

TFIN50_2 __________________________________________ Lesson: Configuring Interest Calculation

3. What account symbol receives the debit posting?

4. What account symbol receives the credit posting?

5. To determine the G/L accounts the SAP System posts to for this transaction,
what other information do you need to know?

6. Enter INT as the chart of accounts. To which account is the debit entry
posted?

7. To which account number is the credit entry posted?

Continued on next page

2006/Q2 © 2006 SAP AG. All rights reserved. 235

Unit 5: Interest Calculation TFIN50 2

8. What is the name of the account in 7, that is, the name of the account to
which the credit entry is posted?

236 © 2006 SAP AG. All rights reserved. 2006/Q2

TFIN50 2 Lesson: Configuring Interest Calculation

Solution 15: Interest Calculation Data

Task 1:
True or false?
1. Account master data must contain an interest calculation indicator for
interest calculation to take place.
Answer: True

2. On a given account, the SAP System cannot charge different interest rates
based on the dollar amounts of balances or items.
Answer: False

3. You can configure the SAP System to calculate interest for customers or
vendors that owe you money. You cannot calculate interest, however, if you
owe your business partner money.
Answer: True

Task 2:
Review the interest calculation functions and Customizing for interest calculation.
1. Name the two kinds of interest calculation the SAP System offers.
Answer: Account balance interest calculation and item interest calculation
(interest on arrears)
2. What information do you need to create a new interest calculation indicator?
Answer: A two-character interest indicator and an interest calculation type. A
name for the interest calculation indicator is useful but not mandatory.

Continued on next page

2006/Q2 © 2006 SAP AG. All rights reserved. 237

Unit 5: Interest Calculation _______________________________________________________ TFIN50_2

Task 3:
Understand account determination for interest calculation.
1. What posting key is used for debit postings for business transaction 1030
(interest calculation period debit interest), in company code 1000, interest
indicator 01?
Answer: IMG: Financial Accounting —»Accounts Receivable and Accounts
Payable —> Business Transactions —> Interest Calculation —> Interest Posting
—> A/R: Balance Interest Calculation
01 (just find business transaction 1030 - the other variables are wildcards
and the answer works for all values.)
2. Credit postings?
Answer: 50 (see 1)
3. What account symbol receives the debit posting?
Answer: 1000 - Customer
4. What account symbol receives the credit posting?
Answer: 0015 - Interest period earned
5. To determine the G/L accounts the SAP System posts to for this transaction,
what other information do you need to know?
Answer: You need the chart of accounts used. When you select accounts,
the system prompts you to enter the chart of accounts.
6. Enter INT as the chart of accounts. To which account is the debit entry
posted?
Answer: It is reposted to the account that interest was calculated for. This
is indicated in the same row as the symbol 1000 and the row with the plus
"+" sign.
7. To which account number is the credit entry posted?
Answer: 273100 - Entry opposite symbol 0015
8. What is the name of the account in 7, that is, the name of the account to
which the credit entry is posted?
Answer: Interest income
Choose Accounting —» Financial Accounting —> General Ledger —> Master
Records —> G/L Accounts —> Individual Processing —» Centrally.
Enter the account number and company code. Choose Enter.

238 © 2006 SAP AG. All rights reserved. 2006/Q2

TFIN50_2 ______________________________________ Lesson: Configuring Interest Calculation

Lesson Summary
You should now be able to:
• Identify data required for interest calculation
Configure the SAP System to perform interest calculation
• Run the interest calculation program

2006/Q2 © 2006 SAP AG. All rights reserved. 239

Unit Summary _______________________________________________________________ TFIN50_2

Unit Summary
You should now be able to:
• Explain the basic options for calculating interest
• Explain the differences between account balance interest calculation and
item interest calculation
• Identify data required for interest calculation
Configure the SAP System to perform interest calculation
Run the interest calculation program

240 © 2006 SAP AG. All rights reserved. 2006/Q2