Loans and accrued interest Flashcards
1
Q
A business can ____ a loan (a liability of the business), in which case it will pay ______ and incur interest ______.
A
raise
interest
expense
2
Q
In which case will the business receive interest and earn interest?
A
When a business makes or grants a loan (an asset of the business)
3
Q
What does interest charged in arrears, often give rise to? (2)
A
- Accrued interest expense
- Accrued interest income
4
Q
How is interest for a period calculated?
A
The amount of the loan outstanding for that period x interest rate in the period
5
Q
How do you deal with interest questions?
A
Draw a long timeline for the loan and a shorter one for the interest (note interest rate changes)
