There are tow kind of interest calculation in SAP system :

- Account balance interest calculation
- Interest on arrears

account balance interest calculation is applied to the entire balance of G/L or costumer account using a specific interest rate over a specified period of time.

Interest on arrears is applied to individual items in account receivable or account payable. a certain interest rate is applied to those items that are still open or unpaid at a specific date.

**Configuring Interest Calculation**

Configuring interest calculation program involving defining setting in five areas :

- Interest calculation Indicator. Which contains two information : interest ID and interest calculation type
- General Term : explaining out how each interest calculation indicators work
- Time Based Term : Set validity dates and relationship to interest rate
- Account Determination : establish the account to which the result of the interest calculation are posted

Interest calculation type specifies whether it used for account balance interest calculation or item interest calculation. Every account for which SAP will calculate interest, must have an interest calculation indicator in its master records.

The system requires a separate interest calculation indicator for each combination of interest calculation frequency, calender type, currency, interest rate, So On.

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