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TimeValue Software Blog

Using Zero Payments for Accruals

By Martel Pellerin

Often, we have no activity on a loan or an investment but we want to know the amount of interest that is accruing or compounding. You can trigger the interest to appear by adding events such as a Payment or Invest for a $0 amount. This causes TValue to calculate the interest and, depending on the compute method, either add it to the principal if you are using Normal (compound interest) or to the accrued interest balance if you are using US Rule (simple interest).

This is a great tool if you are trying to see how an investment will grow over 10 or 20 years even if you don’t have any activity. For example, say you had a $10,000 investment on January 1, 2018 at 7% interest with annual compounding. If you add $0 payments for 10 years on January 1st each year and then looked at the balance in year 10, you would have $19,671.52. With the $0 payments, you would see the account growing by $700 in year 1, $749, in year 2 and finally $1,286 in year 10.

When you are using $0 payments, make sure that the payment dates sync with the compounding period on the regular payment schedule or you may change the interest calculation by creating stub periods. As long as you keep on the regular cash flow schedule, the zero payment will not affect the calculation and will give you additional information on how the loan or investment progresses from period to period.

If you are thinking of using the $0 payment/invest for year-end accruals, be careful as you may change the interest calculations slightly. So you don’t change the calculation, put the December 31st $0 payments for the accrual, print your schedules, and then delete them so you don’t modify the interest calculation.

Hopefully, this is a process that will allow you to see the activity accruing that you normally may not see without events. If you have any questions or need any help, feel free to call TValue Support at 800-426-4741.