Accounting Study Guide

U.S. GAAP Codification   Accounting Topics


Interest Calculations


U.S. GAAP Codification Accounting by Topic Accounting Terms
Financial Accounting Intermediate Accounting Advanced Accounting



  
Present Value, Future Value

Interest Calculation Example 1
Interest Calculation Example 1a

Interest Calculation Example 2
Interest Calculation Example 2a

Compound Interest Example 1
Compound Interest Example 2

Simple and Compound Interest Methods

Simple Interest
      Interest = Principal x Interest rate per period x Number of periods

Compound Interest
      Interests for previous periods are added to principal for the calculation of interest.
      Interest for the nth period 
          = (Principal + Interest for period 1 +  .... + Interest for period n-1) x Interest rate per period


[Example 1, Company A]
Company A borrowed $200,000 on January 1, 2011.  Annual interest rate is 10%.  Calculate interest expenses for 2011, 2012 and 2013.

Simple Interest Method
Year Principal Interest rate Interest expense Principal + Cumulative interest
2011 $200,000 10% $20,000 (*1) $220,000
2012 $200,000 10% $20,000 (*1) $240,000
2013 $200,000 10% $20,000 (*1) $260,000

   (*1) $200,000 x 10% = $20,000

Compound Interest Method
   Interest is compounded annually.
Year Principal Interest rate Interest expense Principal + Cumulative interest
2011 $200,000 10% $20,000 (*2) $220,000
2012 $200,000 10% $22,000 (*3) $242,000
2013 $200,000 10% $24,200 (*4) $266,200

   (*2) $200,000 x 10% = $20,000
   (*3) $220,000 x 10% = $22,000
   (*4) $242,000 x 10% = $24,200

  




 
U.S. GAAP Codification
Accounting Topics
Inventory Valuation Methods
Depreciation Methods
Revenue Recognition Principle
Accrual Basis vs. Cash Basis Accounting
Basics of Journal Entries
Ratios for Financial Statement Analysis
Overview of Financial Statements











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