Calls in Arrears and Calls in Advance: Meaning and Entries

Calls in arrears and calls in advance sound similar because both words appear in the chapter on share capital. But in accounting, they are complete opposites.

One means the shareholder has paid less than the company asked for.

The other means the shareholder has paid more than the company has asked for so far.

That one difference changes the journal entry, the balance sheet treatment, and the way interest is handled.

Once you remember this sentence, the topic becomes much more logical.

First Understand Calls in Share Capital

When a company issues shares, it may collect the share price in parts.

For example, a share of Rs. 10 may be payable like this:

Stage	Amount per share
On application	Rs. 3
On allotment	Rs. 4
On first and final call	Rs. 3
Total	Rs. 10

Each time the company asks shareholders to pay an instalment, that instalment becomes due.

So if the company makes a first and final call of Rs. 3 per share, every shareholder must pay Rs. 3 per share on the shares held by them.

Now compare two situations:

Situation	What happened
A shareholder does not pay the Rs. 3 call	Calls in arrears
A shareholder pays the Rs. 3 call before the company has asked for it	Calls in advance

The word “call” is the key. Arrears relates to a call already made. Advance relates to a call not yet made.

What Calls in Arrears Means

Calls in arrears means the amount that has been called by the company but has not been paid by the shareholder.

Suppose a company makes a first call of Rs. 2 per share on 1,000 shares held by a shareholder.

The shareholder should pay:

1,000 shares x Rs. 2 = Rs. 2,000

If the shareholder pays nothing, Rs. 2,000 is calls in arrears.

If the shareholder pays only Rs. 1,500, then Rs. 500 is calls in arrears.

In simple words, calls in arrears is unpaid called-up share capital.

Journal Entry for Calls in Arrears

First, record the call becoming due.

Suppose the company makes a first call of Rs. 2 per share on 10,000 shares.

10,000 shares x Rs. 2 = Rs. 20,000

The entry for call money due is:

Particulars	Debit	Credit
Share First Call A/c Dr.	Rs. 20,000
To Share Capital A/c		Rs. 20,000

Now assume shareholders pay only Rs. 18,500. The remaining Rs. 1,500 is calls in arrears.

The entry for money received is:

Particulars	Debit	Credit
Bank A/c Dr.	Rs. 18,500
Calls in Arrears A/c Dr.	Rs. 1,500
To Share First Call A/c		Rs. 20,000

This entry closes Share First Call Account because the full amount due has now been accounted for:

• Rs. 18,500 was received in Bank.
• Rs. 1,500 is still unpaid, so it is transferred to Calls in Arrears Account.

When Calls in Arrears Is Received Later

If the shareholder pays the arrear amount later, the company receives cash and closes the Calls in Arrears Account.

Suppose Rs. 1,500 arrears are received later.

Particulars	Debit	Credit
Bank A/c Dr.	Rs. 1,500
To Calls in Arrears A/c		Rs. 1,500

If interest is also charged, it is recorded separately.

Suppose interest on calls in arrears is Rs. 38.

Particulars	Debit	Credit
Bank A/c Dr.	Rs. 1,538
To Calls in Arrears A/c		Rs. 1,500
To Interest on Calls in Arrears A/c		Rs. 38

Interest on calls in arrears is income for the company, so it is credited.

Interest on Calls in Arrears

Interest on calls in arrears is charged because the shareholder has delayed payment of money that was due.

If the question gives a rate, use that rate.

If the company’s rules follow the usual Table F treatment, interest on calls in arrears is charged at 10 percent per annum.

The period is counted from the due date of the call to the actual date of payment.

Item	Treatment
Who pays the interest?	Shareholder
Who receives the interest?	Company
Nature for company	Income
Journal effect	Credit Interest on Calls in Arrears A/c
Usual rate when applicable	10 percent per annum

What Calls in Advance Means

Calls in advance means money received by the company before it has made the relevant call.

Suppose a company has issued shares of Rs. 10 each, payable like this:

Stage	Amount per share
Application	Rs. 3
Allotment	Rs. 4
First and final call	Rs. 3

At the time of allotment, a shareholder pays allotment money of Rs. 4 per share and also pays the future call of Rs. 3 per share.

The company has received the future call early. That future amount is calls in advance.

It is important to understand one point clearly:

The company has received the money, but it has not yet called that amount.

So the amount is not transferred to Share Capital Account immediately. It is credited to Calls in Advance Account.

Why is it a liability?

Because the company is holding money for a call that is not yet due. Until the call is made, the company cannot treat that advance as called-up share capital.

Journal Entry for Calls in Advance

Suppose a shareholder pays Rs. 900 as future call money before the company makes the call.

The entry is:

Particulars	Debit	Credit
Bank A/c Dr.	Rs. 900
To Calls in Advance A/c		Rs. 900

Bank is debited because cash is received.

Calls in Advance Account is credited because the company has received money before it is due.

Adjustment of Calls in Advance When the Call Is Made

Later, when the company makes the call, the advance is adjusted.

Suppose the company now makes the first and final call, and Rs. 900 was already received in advance from one shareholder.

First record the call money due for all shares.

Particulars	Debit	Credit
Share First and Final Call A/c Dr.	Total call due
To Share Capital A/c		Total call due

Then adjust the advance.

Particulars	Debit	Credit
Calls in Advance A/c Dr.	Rs. 900
To Share First and Final Call A/c		Rs. 900

This entry means:

The amount that was received early is now used to settle the call that has become due.

Interest on Calls in Advance

Interest on calls in advance is paid because the company received money before it was actually due.

If the question gives a rate, use that rate.

If the usual Table F treatment applies, interest on calls in advance may be paid at a rate not exceeding 12 percent per annum.

The period is counted from the date the advance money was received to the date the call became due.

Item	Treatment
Who receives the interest?	Shareholder
Who pays the interest?	Company
Nature for company	Expense
Journal effect	Debit Interest on Calls in Advance A/c
Usual rate when applicable	Up to 12 percent per annum

The entry for paying interest is:

Particulars	Debit	Credit
Interest on Calls in Advance A/c Dr.	Interest amount
To Bank A/c		Interest amount

Calls in Arrears vs Calls in Advance

Here is the clean difference.

Basis	Calls in Arrears	Calls in Advance
Meaning	Called-up money not received	Uncalled money received early
Timing	The call has already been made	The call has not yet been made
Reason	Shareholder paid less than the amount due	Shareholder paid more than the amount due so far
Account balance	Debit balance	Credit balance
Nature	Unpaid called-up capital	Liability of the company
Balance sheet treatment	Deducted from called-up capital	Shown as a current liability
Interest	Company may charge interest	Company may pay interest
Common exam clue	”did not pay” or “failed to pay"	"paid the final call in advance”

The easiest way to identify the correct treatment is to ask:

Has the company already asked for this money?

If yes, and it is unpaid, it is calls in arrears.

If no, and it is already received, it is calls in advance.

Balance Sheet Treatment

Calls in arrears and calls in advance appear in different places because their nature is different.

Calls in Arrears in the Balance Sheet

Calls in arrears is deducted from called-up share capital.

For example:

Particulars	Amount
Called-up share capital	Rs. 1,00,000
Less: Calls in arrears	Rs. 5,000
Paid-up share capital	Rs. 95,000

The company has called Rs. 1,00,000, but it has actually received only Rs. 95,000.

That is why calls in arrears reduces the amount shown as paid-up capital.

Calls in Advance in the Balance Sheet

Calls in advance is shown as a liability.

It is not added to share capital until the call is made.

For example:

Particulars	Amount
Share capital, called-up and paid-up	Rs. 95,000
Calls in advance	Rs. 3,000

The Rs. 3,000 has been received, but it relates to a future call. So it is kept separate.

Solved Example With Both Arrears and Advance

Prachi Ltd. issued 10,000 equity shares of Rs. 10 each. The amount was payable as:

Stage	Amount per share
Application	Rs. 3
Allotment	Rs. 4
First and final call	Rs. 3

All application money was received.

All allotment money was received. At allotment, a shareholder holding 300 shares also paid the first and final call in advance.

When the first and final call was made, a shareholder holding 500 shares did not pay the call money.

Let us pass the entries related to allotment, advance, final call, and arrears.

Allotment Money Due

10,000 shares x Rs. 4 = Rs. 40,000

Particulars	Debit	Credit
Share Allotment A/c Dr.	Rs. 40,000
To Share Capital A/c		Rs. 40,000

Allotment Money Received With Advance

Allotment money received:

10,000 shares x Rs. 4 = Rs. 40,000

Advance received from shareholder holding 300 shares:

300 shares x Rs. 3 = Rs. 900

Total bank received:

Rs. 40,000 + Rs. 900 = Rs. 40,900

Particulars	Debit	Credit
Bank A/c Dr.	Rs. 40,900
To Share Allotment A/c		Rs. 40,000
To Calls in Advance A/c		Rs. 900

The Rs. 900 is not credited to Share Capital Account yet because the first and final call has not been made.

First and Final Call Due

10,000 shares x Rs. 3 = Rs. 30,000

Particulars	Debit	Credit
Share First and Final Call A/c Dr.	Rs. 30,000
To Share Capital A/c		Rs. 30,000

First and Final Call Received and Adjusted

The shareholder holding 300 shares has already paid:

300 shares x Rs. 3 = Rs. 900

The shareholder holding 500 shares did not pay:

500 shares x Rs. 3 = Rs. 1,500

Cash received now from the remaining shareholders:

9,200 shares x Rs. 3 = Rs. 27,600

Particulars	Debit	Credit
Bank A/c Dr.	Rs. 27,600
Calls in Advance A/c Dr.	Rs. 900
Calls in Arrears A/c Dr.	Rs. 1,500
To Share First and Final Call A/c		Rs. 30,000

This one entry shows the full logic:

• Bank records the money actually received now.
• Calls in Advance records the amount already received earlier.
• Calls in Arrears records the amount still unpaid.
• Share First and Final Call Account is closed.

Interest Example for Calls in Arrears

Suppose the shareholder who owed Rs. 1,500 pays the arrears after 3 months. Interest is charged at 10 percent per annum.

Interest:

Rs. 1,500 x 10/100 x 3/12 = Rs. 37.50

The entry is:

Particulars	Debit	Credit
Bank A/c Dr.	Rs. 1,537.50
To Calls in Arrears A/c		Rs. 1,500
To Interest on Calls in Arrears A/c		Rs. 37.50

The company receives both the unpaid call and the interest.

Interest Example for Calls in Advance

Suppose the Rs. 900 advance was received 2 months before the call became due. Interest is paid at 12 percent per annum.

Interest:

Rs. 900 x 12/100 x 2/12 = Rs. 18

The entry for paying interest is:

Particulars	Debit	Credit
Interest on Calls in Advance A/c Dr.	Rs. 18
To Bank A/c		Rs. 18

The company pays interest because it had the shareholder’s money before it was actually due.

How to Solve Any Question Quickly

Use this method every time:

1. Write the amount payable at each stage.
2. Calculate the total amount due for that stage.
3. Compare the amount due with the amount actually received.
4. If received is less than due, record calls in arrears.
5. If received is more than due because a future call was paid early, record calls in advance.
6. When the future call becomes due, adjust calls in advance.
7. Calculate interest only if the question asks for it.

This method prevents the most common mistake: treating all bank receipts as share capital immediately.

Common Mistakes to Avoid

Mistake 1: Adding Calls in Advance to Share Capital Immediately

Do not credit Share Capital Account when money is received for a call that has not been made.

Credit Calls in Advance Account first.

Only when the call is made should the advance be adjusted against the call account.

Mistake 2: Showing Calls in Arrears as an Expense

Calls in arrears is not an expense.

It is unpaid called-up capital. In the balance sheet, it is deducted from called-up capital.

Mistake 3: Confusing Interest Direction

For calls in arrears, the shareholder pays interest to the company.

For calls in advance, the company may pay interest to the shareholder.

Type	Who pays?	Company records
Calls in arrears interest	Shareholder	Income
Calls in advance interest	Company	Expense

Mistake 4: Forgetting the Time Period for Interest

Interest is not calculated for a full year unless the delay or advance period is one full year.

Use the actual period given in the question.

For example, for 3 months:

Interest = Amount x Rate x 3/12

Mistake 5: Missing the Exam Clue

Read these phrases carefully:

Phrase in question	Meaning
”failed to pay the call”	Calls in arrears
”did not pay allotment money”	Calls in arrears
”paid the final call in advance”	Calls in advance
”paid the full amount on allotment”	Future call may be calls in advance

The question usually gives the clue clearly. The challenge is slowing down enough to notice it.

Final Summary

Calls in arrears and calls in advance are not difficult once you connect them to timing.

Calls in arrears happens after a call is made. The company asked for money, but the shareholder did not pay the full amount.

Calls in advance happens before a call is made. The shareholder paid money early, before the company asked for it.

So the entries move in opposite directions:

Topic	Debit or credit?	Main idea
Calls in Arrears	Debited when unpaid amount is identified	Money due but not received
Calls in Advance	Credited when early money is received	Money received but not yet due

If you remember the timing, the entries almost write themselves.

Frequently Asked Questions

What is calls in arrears in simple words?

Calls in arrears is the amount that the company has called from shareholders but has not received. It is unpaid called-up share capital.

What is calls in advance in simple words?

Calls in advance is money received from a shareholder before the company has made the relevant call. It is early payment of a future call.

Is calls in arrears a debit or credit?

Calls in Arrears Account has a debit balance. When the company receives less than the amount due, Calls in Arrears Account is debited for the unpaid amount.

Is calls in advance a debit or credit?

Calls in Advance Account has a credit balance. When the company receives money for a future call, Calls in Advance Account is credited.

Where is calls in arrears shown in the balance sheet?

Calls in arrears is deducted from called-up share capital. This helps show the actual paid-up capital clearly.

Where is calls in advance shown in the balance sheet?

Calls in advance is shown as a liability until the related call is made. It is not added to share capital immediately.

What is the interest rate on calls in arrears?

If the question gives a rate, use that rate. Under the usual Table F treatment, interest on calls in arrears is 10 percent per annum when applicable.

What is the interest rate on calls in advance?

If the question gives a rate, use that rate. Under the usual Table F treatment, interest on calls in advance may be paid at a rate not exceeding 12 percent per annum when applicable.

Should interest be calculated if the question is silent?

Usually, no. In school-level questions, calculate interest only when the question asks for it or gives enough details such as rate, dates, and payment period.

What is the easiest way to remember the difference?

Ask whether the company has already made the call. If the call was made and money is unpaid, it is calls in arrears. If the call was not made but money was received early, it is calls in advance.