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The Complete Idiot's Guide® To Accounting by Lita Epstein, Shellie L. Moore

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Interest Payments

One of the most complicated types of payments made by accounts payable is loan payments in which interest expenses must be recorded. Calculating those interest expenses is what can make recording loan payments a bit complicated.
The two ways to calculate interest payments are simple interest and compound interest. Simple interest computes the interest costs of a loan based solely on the loan principal. Compound interest is calculated based on both the loan principal and accumulated interest.
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DEFINITION
Simple interest is calculated on a principal sum, not compounded on earned interest. Compound interest is calculated not ...

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