CALCULATING SIMPLE INTEREST ©
interest.doc
Written by Professor Gregory M. Burbage, MBA, CPA, CMA, CFM
Please observe all copyright laws
Symbols:
P = Principal (the amount of money borrowed or loaned)
i = annual interest rate
t = time in relation to one year
Simple interest formula:
Principal x annual interest rate x time = interest amount
P . i . t = interest amount
Due date of notes: If the note is expressed in days then count the exact days
to determine the due date. If the note is expressed in months count months.
For example:
A 90-day note dated February 1 would be due on May 2
nd
whereas a 3-month
note dated February 1 would be due on May 1
st
.
Example 1:
Assume you borrowed $10,000 from the bank on January 1, 2006
agreeing to pay 7.5% simple interest.
All principal and interest are due at
the end of three months, which is April 1, 2006.
a. Calculate the amount of accrued interest as of January 31, 2006 and show
the adjusting journal entry, which is one month after borrowing the money.
$10,000 x 7.5% x 1/12 = $62.50

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