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 of the following best describes the difference between simple interest and compound interest?

Simple interest is calculated only on the original principal, while compound interest is calculated on the principal plus any previously earned interest.

Simple interest and compound interest are both calculated only on the original principal.

Simple interest is calculated on the principal and all future interest, while compound interest is calculated only on the original principal.

Compound interest is always less than simple interest for the same time period and rate.

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Verified step by step guidance

Step 1: Understand the concept of simple interest. Simple interest is calculated only on the original principal amount, meaning the interest does not compound or accumulate over time.

Step 2: Understand the concept of compound interest. Compound interest is calculated on the principal amount plus any previously earned interest, meaning the interest accumulates and grows over time.

Step 3: Compare the two concepts. Simple interest remains constant over time because it is based solely on the original principal, while compound interest grows because it includes interest earned in previous periods.

Step 4: Analyze the options provided in the problem. Identify which option correctly describes the difference between simple and compound interest based on the definitions and characteristics explained.

Step 5: Eliminate incorrect options by checking if they align with the definitions of simple and compound interest. Select the option that accurately reflects the difference between the two types of interest.