Monthly Compounding Interest Formula

Income and expenses – the fundamentals to financing projects. Once the source of income has been decided, properly determining and evaluating all necessary expenditures for a proposed project is essential. In order to maintain proper accounting a capital budget is needed. This capital budget, as it is defined by Investopedia is “the process in which a business determines and evaluates potential expenses or investments that are large in nature” (para. 1). The Federal Government must be as responsible and any other organization when it comes to managing finances. The Department operates on a calendar that utilizes a fiscal year in order to properly calculate when, how much, and which expenses are paid. In this, it is important to understand …show more content…
This formula is a bit more complex than the simple daily formula. The monthly compounding interest formula uses a two part formula to determine the amount of payment to be paid per the Prompt Payment Act. According to the Bureau of Fiscal Services (2015), this two part method of calculating interest involves both compounded interest and simple interest. First, the interest is compounded for the month. Then, for every day the payment goes past 30 days late, daily simple interest is cumulated. The formula for this type of interest is P(1+r/12)n * (1+(r/360*d)) –P; …show more content…
Pro forma, according to Investopedia (n.d.), is the display of different financial scenarios based on a business’s financial status from a current or previous financial status. In as much, financial data in a pro forma financial statement includes information from either the revenue or the expenses aspect. The purpose of the pro forma form is to express the financial statement without the extraordinary ventures. The form also displays the financial situation for possible projects. In other words, what would happen financially if the organization were to move forward with the proposed project? The figures presented by the pro forma financial statement are not always in compliance with the GAAP (Generally Accepted Accounting Practices). However, this is not a problem since the Securities and Exchange Commission (SEC) has implemented strict requirements concerning reporting of this type of financial information. According to Investopedia (n.d.), “The SEC also made it clear that utilizing pro forma results to lie about or grossly misconstrue GAAP-based results would be deemed fraud and punishable by law if investors were misled”(para.