Basic question from Avg. Due Date Calculation

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Savita (Querist)
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13 July 2010 Please explain the reason/logic behind the following statement:

If the payment of the entire sum due is made by the Debtor 'before the due date', then it would result in a GAIN FOR THE CREDITOR & A LOSS FOR THE DEBTOR (by way of interest).

Similarly, if the entire payment is made by the Debtor 'after the due date', then it would result in a LOSS FOR THE CREDITOR & A GAIN FOR THE DEBTOR(by way of interest).

Thank you.

Shudhanshu Agrawal

Shudhanshu Agrawal (Expert)
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14 July 2010 Let me take an example. Suppose Amitabh has to take Rs. 10L from Sharukh then Sharukh will be debtor for Amitabh. While giving the amount Amitabh said that you can pay the amount in 45 days and i will not charge any interest. But Sharukh pay back it after 15 days. It means Amitabh received the amount 30 days earlier. Now Amitabh can invest this amount anywhere and he can earn interest on it. But at the same time Sharukh will loose that much amount of interest.

In the above statement they are talking about this interest amount which will be income for Amitabh where as it will be loss for Sharukh

This is the logic behind the first statement.

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Shudhanshu Agrawal

Shudhanshu Agrawal (Expert)
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14 July 2010 For second point if i continue with my above example suppose Sharukh pay back this amount after 90 days and Amitabh did not charge any ineterst from Sharukh then Amitabh has lost the interest amount which he can earn if he had received this amount after 45 days.

So Amitabh has lost interest for 45 days but Sharukh must have utilized that amount and generated income for 45 days.

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