by Average Due Date is the date on which several debts due on different dates can be paid by a single payment without any loss of interest either to debtor or creditor. Average Due Date or Equated Due Date is the arithmetic average of several due dates.
When a person owes various amounts on different dates to another person, it may be desired to discharge the debts on a single date by a lump sum payment without any loss of interest to either party.
Such an equated date of payment is called the Average Due Date. The application of the average due date comes into use in settlement of accounts, such as, Bill transactions, payment of credit transactions, calculation of interest on drawings by partners etc.
The concept of Average due date (ADD) is generally used in the following situations:
- For settling accounts between principle and agent.
- Calculating interest on drawings of partners.
- For settling contra accounts e.g. where parties sell goods to each other.
- Making lump sum payment against various bills drawn on different dates with different due dates.
Average due Date = Base date ± [Total of the products / Total of the amounts]
Points to Remember for Calculation:
- Base date/ zero date may be taken as the due date of the first transaction or the due date of the last transaction or any other due date between the first and the last but preferably an earlier due date may be taken.
- While calculating the number of days always ignore the first day and include the last day.
- If the due date is in the fraction, round it off.
- If the amount is paid before the due date, a rebate is given. While, where the amount is paid after the due date, then interest will be charged.
- Due date: Due date means the date on which the amount becomes payable.
- Maturity date: Always calculate the Maturity date after taking into consideration three days of Grace. Calculation of Due Date when there is a Holiday on maturity day, due date is the next preceding working or business day.
Uses
- The settlement of accounts by a series of bills of exchange due on different dates.
- Problems relating to the calculation of interest on drawings by partners, on different dates.
- The settlement of accounts between one trader and another or a trader and his customers.
