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simple Interest payable can be calculated;
yearly --- principle amount * interest rate/100
monthly --- principle amount * interest rate/100 *no. of months/12
Its very simple by mulitiplying Principal Amount with Interest rate and numbers of years. Interest payable = P * r*t
Multiply the principal loan amount by the annual interest rate. The result then is multiplied by the loan's time period.
Interest=(interest rate/Number of payments) x Principle Amount
Another method is the loan amortization table method
(interest rate / number of payments)*loan principal
its calculated by deviding the numberof days basing on the loan given out to the individual with the percentage agreed on.
Assume company borrows 10k USD on 1st January. The loan is for 1 year at a rate of 5%.
Simple interest is calculated as follow: 10000*0.05= 500/12= 41.7 USD per month.
Company accrues interest expense each month, so the entry will be made as follow:
Debit Interest expense 41.7
Credit Interest Payable 41.7
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