Is it advisable to charge interest on the Cash and Receivables available on the Books ?

Save Share

This query is : Resolved

Quick Summary

Charging interest on cash held on the books is generally not advisable as cash is a medium of exchange and not typically an interest-bearing asset. While charging interest on receivables can compensate for the time value of money, it's not standard practice and can strain customer relationships. Factors like industry norms, agreements, and regulations should be considered before implementing such a policy.

CA Shriram Deshpande

CA Shriram Deshpande (Querist)
Follow

16 May 2023 One of our Directors is asking to charge interest on Cash and Receivables in the Books. Could some of the distinguished experts shed some light on this issue. Whether it is correct or not ? If Yes why and if not why not.

Thanks in advance
shriram Deshpande

Message likes : 1 times

CA Syed Raza Abbas Rizvi

CA Syed Raza Abbas Rizvi (Expert)
Follow

16 May 2023 Charging interest on cash and receivables in the books is generally not a common practice and is typically not considered appropriate. It goes against the nature of cash, may strain customer relationships, and is not required by accounting standards. Legal and regulatory restrictions should also be considered

Message likes : 1 times

CA Syed Raza Abbas Rizvi

CA Syed Raza Abbas Rizvi (Expert)
Follow

16 May 2023 Cash is typically considered a non-interest-bearing asset. It is a medium of exchange and a store of value, but it does not generate interest income by itself. Charging interest on cash would go against the general understanding of its purpose and characteristics.

Message likes : 1 times

CA Syed Raza Abbas Rizvi

CA Syed Raza Abbas Rizvi (Expert)
Follow

16 May 2023 Charging interest on receivables can be seen as a way to compensate for the time value of money and the opportunity cost incurred by the business. However, the decision to charge interest on receivables depends on various factors, such as industry norms, customer agreements, and legal regulations. Many businesses provide credit terms to their customers as part of their sales strategy and factor in potential interest costs when setting product prices or credit terms. Charging additional interest on top of that may strain customer relationships and be seen as unfair

Message likes : 1 times

You need to be the querist or approved CAclub expert to take part in this query .
Click here to login now