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

1. Introduction to Accounting

Types of Accounting

Financial Accounting

1. Introduction to Accounting

Types of Accounting

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Multiple Choice

Which type of interest earns a bigger rate of return on a deposit over time, assuming the same nominal rate and compounding period?

Compound interest

Simple interest

Nominal interest

Discounted interest

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Verified step by step guidance

Understand the concept of simple interest: Simple interest is calculated only on the principal amount of a deposit, without considering any interest earned in previous periods. The formula for simple interest is \( I = P \cdot r \cdot t \), where \( P \) is the principal, \( r \) is the annual interest rate, and \( t \) is the time in years.

Understand the concept of compound interest: Compound interest is calculated on the principal amount and also on the accumulated interest from previous periods. The formula for compound interest is \( A = P \cdot (1 + r)^t \), where \( A \) is the total amount after interest, \( P \) is the principal, \( r \) is the annual interest rate, and \( t \) is the time in years.

Compare the two types of interest: Over time, compound interest earns a bigger rate of return because it takes into account the interest earned in previous periods, which is added to the principal for future calculations. Simple interest, on the other hand, does not compound and only applies to the original principal.

Consider the nominal interest rate: The nominal interest rate is the stated annual rate without adjustments for compounding. It does not directly indicate the rate of return over time unless the compounding frequency is specified.

Understand discounted interest: Discounted interest refers to interest that is deducted upfront from the principal amount, often used in loans or bonds. It does not earn a bigger rate of return compared to compound interest over time.