MOI (Simple Interest) Find the missing "r" @THINKTANKLIKEBEES

Summary

The transcript explains how to calculate missing elements in interest computations, focusing on the principal, rate, and time. It outlines formulas for determining each missing component, providing examples for clarity. Specifically, it demonstrates how to find the rate when given the interest, principal, and time, leading to a calculated interest rate of 11.16%. Additionally, it discusses the accounting treatment of the principal as either accounts payable or notes payable, highlighting the differences. The final computation shows that the total amount due after eight years would be 795,000, combining both principal and interest.

Takeaways

• 📈 The formula for calculating missing interest is based on the relationship between principal, rate, and time.
• 💡 If the principal is missing, it can be calculated using the formula: P = I / (R × T).
• 📊 When the rate is missing, the calculation is: R = I / (P × T).
• ⏳ To find the missing time, use the formula: T = I / (P × R).
• 🔍 In a sample problem, if the time is given as eight years, principal as 420,000, and interest as 375,000, the rate can be calculated.
• 🔢 The denominator for rate calculation is derived from multiplying the principal by the time (420,000 × 8).
• 📉 The computed rate in the example results in an interest rate of approximately 11.16% per month.
• 🧾 When documenting entries, differentiate between accounts payable (no signed documents) and notes payable (with signed documents).
• 💰 In the example, the total cash payment after eight years includes both principal (420,000) and interest (375,000), totaling 795,000.
• ⚖️ Understanding these calculations is essential for accurate financial reporting and effective loan management.

Q & A

What is the main focus of the video transcript?

The transcript focuses on how to compute the missing components of the interest formula, specifically when the principal, rate, or time is missing.

How do you find the principal if the interest, rate, and time are known?

The principal can be calculated using the formula P = I / (R × T), where I is the interest, R is the rate, and T is the time.

What formula is used to calculate the rate when interest, principal, and time are given?

The rate can be calculated using the formula R = I / (P × T).

What is the formula to calculate the time if the interest, principal, and rate are known?

The time can be calculated using the formula T = I / (P × R).

In the example provided, what values are used to calculate the missing rate?

The values used are Interest (I) = 375,000, Principal (P) = 420,000, and Time (T) = 8 years.

What is the calculated interest rate in the provided example?

The calculated interest rate is approximately 11.16%.

How is the total amount to be paid back after eight years calculated?

The total amount to be paid back is the sum of the principal and the interest, which equals 420,000 + 375,000 = 795,000.

What is the difference between Accounts Payable and Notes Payable?

Accounts Payable is used when there is no formal documentation, while Notes Payable is used when there is a documented loan agreement.

What accounting entries are made for the loan described in the transcript?

The entries include a debit to Accounts Payable or Notes Payable for the principal amount and a credit to Interest Payable for the interest amount.

Why is it important to understand how to compute missing variables in the interest formula?

Understanding how to compute missing variables is crucial for accurate financial calculations and effective financial management.