What is a method of interest?
Interest method is a specific method used to determine interest income or interest costs. This method is primarily used by investors to analyze bond discounts or bonuses. This can also use creditors to calculate paid interest. Those who use the interest method in calculating interest will calculate at the beginning of the accounting period. This calculation involves multiplying the account value of the debt or receivable by an effective interest rate.
The wearing value of the debt or receivable is the amount of money to which interest is currently involved. For example, if the creditor of a client who owes him $ 100,000 in the US (USD) at the beginning of the accounting period, the transfer value is $ 100,000; It is a claim because it is money. If the debtor pays $ 1,000 in the main place during the accounting period, the interest will be assessed next time, the predominance value is equal to $ 99,000.
The interest of the Mušthod is often considered a convenient method of calculating interest income and expenditure as it allows you to charge fixed interestVou rate, but in each period a different amount of dollar will be charged. For example, the interest rate on the above debts of $ 100,000 can be 6% per year. Instead of simply billing $ 6,000 in interest interest annually, the annual interest rate of 6% shall be used for the actual balance it owes to determine the effective interest rate.
The accounting period in which the interest method is used to calculate interest costs may vary depending on the creditor and the situation. Most often the accounting period is monthly, and therefore interest is calculated and differs from month to month. On the other hand, if payments are made quarterly or two hundred, the accounting period may be quarterly or double and interest rate and interest costs or income will be calculated quarterly or biannally.
Interest method can be used to determine how much investor actually does on bonds or other investment. Can calculate the effective interest SAZBU - the interest he actually earns - using these numbers, because it allows him to see how his interest balance when adding to the main affects his return on his return. For example, if an investor invests an initial balance of $ 10,000 for $ 5%, he can determine how much interest that the initial balance earns in the first month, and then by adding the interest to the original balance and multiplying interest costs in the next month, it can determine how much income it has.