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 refers to the payment made for the use of borrowed money?

Principal

Interest

Depreciation

Dividend

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Verified step by step guidance

Understand the concept of borrowing money: When an entity borrows money, it typically agrees to pay back the principal amount (the original sum borrowed) along with an additional payment for the privilege of using the money.

Define the term 'Interest': Interest is the cost of borrowing money, expressed as a percentage of the principal amount. It is paid by the borrower to the lender as compensation for the use of the lender's funds.

Differentiate between the given terms: Principal refers to the original amount borrowed, depreciation is the reduction in the value of an asset over time, and dividend is a payment made to shareholders from a company's profits. None of these terms describe the cost of borrowing money.

Identify the correct term: Based on the definitions, the term that refers to the payment made for the use of borrowed money is 'Interest.'

Apply this understanding to similar scenarios: Whenever you encounter a financial transaction involving borrowing, remember that interest is the additional payment made for the use of the borrowed funds.