The answer to your question, Toni, depends on the servicing method you are reviewing. Monthly simple interest (like mortgages) works one way and daily simple interest (like many consumer loans) is different.
Mortgage lenders/servicers almost always charge monthly simple interest--current month's interest equals the outstanding principal balance times the annual simple interest rate divided by 12. All months are considered to be the same time period--1/12 of a year. Following this method, you will charge interest for the full month and add a late charge (penalty) if payment is more than # days late. (# may be determined by state law, VA/FHA standards, or other external authorities.)
Most consumer lenders switched from add-on interest to daily simple interest by the mid-1990s. Reasons included the desire to offer variable rate products and pressure at both the state and national levels to eliminate the "Rule of 78" rebate method that accompanied the add-on accounting system. After making the change, they discovered that the year had not gained any days! Although the consumer may be late this month and run up a bill for 10 extra days (40 day's interest deducted from the payment received), if next month's payment is made on time, the bank only deducts 20 days' interest from the payment received. State law may also allow the late payment penalty.