Table of contents

1. Introduction to Accounting1h 21m
2. Transaction Analysis1h 13m
3. Accrual Accounting Concepts2h 38m
4. Merchandising Operations2h 30m
5. Inventory1h 55m
6. Internal Controls and Reporting Cash1h 16m
7. Receivables and Investments3h 8m
8. Long Lived Assets5h 1m
9. Current Liabilities2h 19m
10. Time Value of Money1h 23m
- Time Value of Money Equations
  35m
- Using Time Value of Money Tables
  47m
11. Long Term Liabilities2h 45m
12. Stockholders' Equity2h 15m
13. Statement of Cash Flows2h 24m
14. Financial Statement Analysis5h 25m
15. GAAP vs IFRS56m

10. Time Value of Money

Time Value of Money Equations

Financial Accounting

10. Time Value of Money

Time Value of Money Equations

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Multiple Choice

Which term best describes the process where interest is earned on both the initial principal and on interest previously earned?

Simple interest

Compound interest

Discounting

Amortization

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Verified step by step guidance

Understand the key terms: Simple interest refers to earning interest only on the initial principal, while compound interest involves earning interest on both the initial principal and previously earned interest.

Identify the process described in the question: The question specifies earning interest on both the initial principal and previously earned interest.

Match the description to the correct term: The process of earning interest on both the initial principal and previously earned interest is known as compound interest.

Eliminate incorrect options: Simple interest does not involve earning interest on previously earned interest. Discounting refers to determining the present value of future cash flows, and amortization involves spreading out a cost or loan repayment over time.

Conclude that the correct term for the described process is compound interest.