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emma123
emma123 Registered Posts: 108 Dedicated contributor 🦉
in AAT Level 3 (Level 6 in Scotland)
hey guys

I'm gonna sound really stupid here but can someone help me figure out overdraft interest? it's been bugging me for ages now.

The q's from Task 1 and it asks you to calculate overdraft interest for jan, feb, mar and april 04

at the end of dec 03, the overdraft was £520,000. Interest rate is 1% per month.

Am I right in calculating that interest for jan will be £5,200?

After this, I'm stuck. Do I calculate 1% of £5,200? Or do I add the previous interest onto the dec overdraft balance, to give £525,200 and calculate 1% of that? Neither sound right but I don't know what else to do?

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  • SandyHood
    SandyHood Registered, Moderator Posts: 2,034 mod
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    Yes £5,200
    This is a cash outflow in January
    The net cash flow in January is added to the opening balance at the beginning of January to find the closing balance
    The interest payable in February is 1% of the January closing overdraft balance
    Sandy
    sandy@sandyhood.com
    www.sandyhood.com
  • emma123
    emma123 Registered Posts: 108 Dedicated contributor 🦉
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    I think I understand it in theory it's just trying to find the right figures. As long as I know I'm on the right track, I can cope with it now. Cheers Sandy :)

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