accrue

Examples of accrue in the following topics:

• Number of Periods

  • The number of periods corresponds to the number of times the interest is accrued.
  • The number of periods corresponds to the number of times the interest is accrued.
  • In compound interest, the interest in one period is also paid on all interest accrued in previous periods.

• Calculating the Yield of a Single-Period Investment

  • These generally have monthly loans or fees, but if you want to get an idea of how much you will accrue in interest per year, you need to calculate an APR.
  • However, since interest compounds, nominal APR is not a very accurate measure of the amount of interest you actually accrue.
  • To find the effective APR, the actual amount of interest you would accrue per year, we use the Effective Annual Rate, or EAR.
  • The logic behind calculating APY is the same as that used when calculating EAR: we want to know how much you actually accrue in interest per year.
  • The Effective Annual Rate is the amount of interest actually accrued per year based on the APR. n is the number of compounding periods of APR per year.

• Multi-Period Investment

  • They can either accrue simple or compound interest.
  • The first concept of accruing (or earning) interest is called "simple interest. " Simple interest means that you earn interest only on the principal.
  • One more year passes, and it's time to accrue more interest.
  • The second way of accruing interest is called "compound interest. " In this case, interest is paid at the end of each period based on the balance in the account.

• Calculating Values for Fractional Time Periods

  • That means that the point in the future is also a point where interest accrues.
  • Compounding periods can be any length of time, and the length of the period affects the rate at which interest accrues.
  • The last time the account actually accrued interest was at period 6; the interest for period 7 has not yet been paid.
  • If the account accrues interest continuously, there is no problem: there can't be a fractional time period, so the balance of the account is always exactly the value of the money.

• Comparing Interest Rates

  • Since interest compounds, the amount of interest actually accrued may be different than the nominal amount.
  • The last section went through one method for finding the amount of interest that actually accrues: the Effective Annual Rate (EAR).
  • The Fisher Equation is a simple way of determining the real interest rate, or the interest rate accrued after accounting for inflation.

• Calculating Values for Different Durations of Compounding Periods

  • The effective annual rate (EAR) is a measurement of how much interest actually accrues per year if it compounds more than once per year.
  • You can think of it as 2% interest accruing every quarter, but since the interest compounds, the amount of interest that actually accrues is slightly more than 8%.

• Approaches to Calculating Future Value

  • How does the interest accrue?
  • The loan accrues interest at a rate of 3% per quarter.
  • On January 1, 2015, you will take out another $5000, eight-year loan, with this one accruing 5% interest per year.
  • The loan accrues interest on the principal only.

• Calculating the Cash Flow Cycle

  • To estimate its RATE, we note that Accounts Receivable grows only when revenue is accrued; and Inventory shrinks and Accounts Payable grows by an amount equal to the COGS expense (in the long run, since COGS actually accrues sometime after the inventory delivery, when the customers acquire it).

• Preparation of the Balance Sheet

  • The current liabilities of most small businesses include accounts payable, notes payable to banks, and accrued payroll taxes.
  • Accrued payroll taxes would be any compensation to employees who have worked, but have not been paid at the time the balance sheet is created.

• Noncash Items

  • In each period, long-term noncash assets accrue a depreciation expense that appears on the income statement.