Differences between Calls in Arrears and Calls in Advance

Arjun EP

Published on: July 9, 2020

When shareholder(s) cannot pay due amount on due date, it is called calls in arrears.

It may be on allotment, first call or second and final call.

There is never arrear in application.

According to Company Act, the company should send writing notice or letter to shareholders about calls in arrears.

The company may charge 5% p.a. interest on calls in arrears according to time period.

Reason for calls in arrears may be as under:

· Shareholders does not have money to pay

· He/she does not want to the money

· He/she has not received calls letter.

Journal entry for calls in arrear

Date	Particulars		LF	Amount Dr	Amount Cr
Due	Amount due or receivable
	Equity share allotment account	Dr		xxxx
	To Equity share capital account				xxxx
	(Being- amount due on allotment)

Received	Amount received on allotment
	Bank account	Dr		xxxx
	Calls in arrear account	Dr		xxxx
	To Equity share allotment account				xxxx
	(Being- amount received on allotment)

Due	Amount due or receivable
	Equity share allotment account	Dr		xxxx
	To Equity share capital account				xxxx
	(Being- amount due on allotment or calls)

Received	Amount received on calls
	Bank account	Dr		xxxx
	Calls in arrear account	Dr		xxxx
	To Equity share calls account				xxxx
	(Being- amount received on calls)

Interest charged on calls in arrears

Date	Particulars		LF	Amount Dr	Amount Cr
	Bank account	Dr		xxxx
	To Interest on calls in arrear account				xxxx
	(Being-interest received on calls in arrears)

When a shareholder pays due amount before calling is calls in advance.

According to Company Act, shareholders can get 6% p.a. interest on calls in advance if it is mentioned on memorandum of association.

Shareholder can get dividend of calls in arrears shares if Articles of Association mentions.

Reason for calls in advance may be as under:

· Shareholder wants to get interest.

· He has to go out-of-station for long time.

· May be, in future he cannot pay due amount within time etc.

Calls in advance first time credited

Date	Particulars		LF	Amount Dr	Amount Cr
Received	Amount received on allotment
	Bank account	Dr		xxxx
	To Equity share allotment account				xxxx
	To Calls in advance account (on first and final call combined)				xxxx
	(Being-

Calls in advance second time debited

Received	Amount received on first call
	Bank account	Dr	xxxx
	Calls in advance account (on first call)	Dr	xxxx
	To Equity share first call account			xxxx
	(Being-

Calls in advance second time debited

Received	Amount received on final call
	Bank account	Dr	xxxx
	Calls in advance account (on final call)	Dr	xxxx
	To Equity share final call account			xxxx
	(Being-

Interest paid on calls in advance

Interest on calls in advance account	Dr	xxxx
To Bank account			xxxx
(Being-interest paid on calls in advance)

Interest paid and transfer to profit and loss account

Profit and loss account	Dr	xxxx
To Interest on calls in advance account			xxxx
(Being-interest paid on calls in advance transfer to
Profit and loss account )

Balance Sheet

Bases	Calls in Arrears	Calls in Advance
Calls	Calls in arrears are unpaid amount by shareholders.	Calls in advance are prepaid amount by shareholders.
Interest	Company receives interest on call in arrears.	Company pays interest on call in advance.
Interest rate	Company receives 5% interest on arrears.	Company pays 6% interest on advance.
Show	Company deducts it from issued capital in liabilities side of balance sheet.	Company shows it on current liabilities of balance sheet.
Entry	It is only debited in journal entry with bank transaction.	It is first credited then debited in journal entries.