A Beginning Accounting Student Has Just Been Introduced to Present

question 15

Essay

A beginning accounting student has just been introduced to present and future values analysis and has been told that it is based on compound interest, not simple interest.The student is confused about the differences between the two interest methods.
Required:
Explain the difference between the two methods using a single deposit of $1, 000 for two years at 10% interest.

---

Definitions:

Federal Legislation

Laws enacted by the national government of a country, in this case, the United States, which apply to all states and citizens.

Cost-Benefit Analysis

A systematic approach to estimate the strengths and weaknesses of alternatives; it is used to determine options that provide the best approach to achieve benefits while preserving savings.

Social Theory

A framework or set of ideas that aims to explain how societies function, change, and develop.

Indirect Costs

Expenses not directly attributable to a specific product or service but necessary for the general operation of a business.