Fundamental Accounting Principles

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Hi there,

Please see the attached Word document.

Amortization is a means of paying out a predetermined sum (the principal) plus interest over a fixed period of time, so that the principal is completely eliminated by the end of the term. This would be trivial if interest weren't involved, since one could simply divide the principal amount into a certain number of payments and be done with it. The trick is to find the right payment amount, which includes some principal and some interest. The math isn't celestial mechanics, but beyond the capabilities of the basic pocket calculator. For the curious, there's a mathematical presentation of the problem and its solution.
This calculator assumes that each payment should be the same amount, and that a payment consists of some amount for principal reduction and the interest calculated on the principal balance (including the principal part of the current payment). I have been told that some Canadian mortgages are not calculated using this method (anyone wanna give me some details?).
Amortization is used most often in mortgages (at least in the United States) and short-term loans, but the technique can also be applied to figure out how long it would take to pay off a given credit card debt (for example). In fact, this ...