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

3. Accrual Accounting Concepts

Introduction to Adjusting Journal Entries and Prepaid Expenses

Financial Accounting

3. Accrual Accounting Concepts

Introduction to Adjusting Journal Entries and Prepaid Expenses

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Multiple Choice

When loan payments are amortized, what happens to the total amount you owe every month?

It decreases over time as principal is paid down.

It increases each month due to accumulating interest.

It fluctuates randomly based on market rates.

It remains the same each month.

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Verified step by step guidance

Understand the concept of loan amortization: Loan amortization refers to the process of paying off a loan over time through regular payments. Each payment includes both interest and principal components.

Recognize how the principal and interest components change: In the early stages of the loan, a larger portion of the payment goes toward interest, while a smaller portion goes toward reducing the principal. Over time, as the principal decreases, the interest portion of the payment decreases, and the principal portion increases.

Analyze the total monthly payment: For most amortized loans (e.g., fixed-rate mortgages), the total monthly payment remains constant throughout the loan term. However, the allocation between interest and principal changes as described above.

Determine the impact on the total amount owed: Since the principal is being paid down with each payment, the total amount owed decreases over time. This is a key characteristic of amortized loans.

Eliminate incorrect options: The total amount owed does not increase each month (as interest is not accumulating without payment), it does not fluctuate randomly (as fixed-rate loans have predictable payments), and the total amount owed does not remain the same (as principal is being reduced).