While the method of calculating interest above outlined is correct, it is extremely inconvenient in an office where there are many contracts involving such interest calculations, and various attempts have been made to simplify matters. One plan consists in calculating the interest half-yearly on fixed dates, these dates being the same in all contracts of one class. This reduces the work of the bookkeeper, inasmuch as it brings all such interest calculations at two stated times each year instead of scattering them through every month of the year.
Another plan which has been adopted with some success is to calculate the interest every six months on the balance then unpaid. This is convenient for the bookkeeper, as it enables him to take his monthly trial balance and simply calculate the interest on each amount shown thereon. An example of such a calculation is given in Section 139.
The effect of this method of calculating the interest is far-reaching - more so than would appear at first sight. For instance, if a purchaser made a substantial payment on the last day of the half year, he would, under the above arrangement, save half a year's interest on that payment; and the result to the vendor is that, instead of realizing an 8% interest, he realizes perhaps 7½ %. There is still another aspect to be considered. If a purchaser does not make any payments for a year or two, and interest is added on the outstanding balance each half year, he is, of course, being charged compound interest, which is illegal in many states.
A third method, which yields results sufficiently accurate for all practical purposes, assuming that payments are made regularly, is to calculate the interest, say, April I and October 1 of each year, on the balances remaining unpaid at the middle of the half-year (in this case, on January 1 and July 1). This is definite, simple, and accurate, and might well be generally adopted.
In any event, it is economical and convenient to arrange for all interest to fall due at fixed periods in the manner indicated, and it also tends greatly toward correctness.