Publisher's Synopsis
This historic book may have numerous typos and missing text. Purchasers can usually download a free scanned copy of the original book (without typos) from the publisher. Not indexed. Not illustrated. 1921 edition. Excerpt: ... CHAPTER XXII INTEREST The professional auditor should be thoroughly acquainted with the various methods of calculating interest. There is a remarkable lack of uniformity among business houses, and even banks, on the subject. The audit clerk who verifies interest collections or interest payments feels" relieved if his own calculation agrees within a few dollars with the amount received or paid and lets it go at that. As the "few dollars" multiplied a number of times will aggregate a considerable sum, it is important that the auditor familiarize himself with, and require his clerks to learn, the laws and customs governing interest, so that when a test is made it will be done intelligently, and if the amount received is insufficient or the amount paid is excessive, a report may be made thereon with confidence in the correctness of the criticism. The three factors entering into the calculation of interest are principal, rate, and time. Principal Principal is the amount on which interest is to be calculated. There are two methods of reckoning principal. In bank discount the principal is regarded as the entire face of the note. For example, the bank discount on a note for $1,000 payable at one year at 6 per cent would be $60, and the proceeds paid to the customer would be $940. It will be noted that here the customer has the use cf only $940 for one year, and yet he pays interest for the use of $1,000 for one year. The actual principal on which interest should be chargeable is only $940. The fictitious principal, on which interest actually is charged, is $1,000. The true principal in such case is found by the following proposition: 1.06: 1.00:: $1,000: X which gives a present value of $943.40 for X In spite of the foregoing facts, it is now...
