Interest

# Interest - Symbols P = Principal(the amount of money...

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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 Dr. Interest expense \$62.50 Cr. Interest payable \$62.50 b. Calculate the total accrued interest as of March 31, 2006.

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Interest - Symbols P = Principal(the amount of money...

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