Interest is payment from a borrower or deposit-taking financial institution to a lender or depositor of an amount above repayment of the principal sum, at a particular rate. It is distinct from a fee which the borrower may pay some third party, it is distinct from dividend, paid by a company to its shareholders from its profit or reserve, but not at a particular rate decided beforehand, rather on a pro rata basis as a share in the reward gained by risk taking entrepreneurs when the revenue earned exceeds the total costs. For example, a customer would pay interest to borrow from a bank, so they pay the bank an amount, more than the amount they borrowed. In the case of savings, the customer is the lender, the bank plays the role of the borrower. Interest differs from profit, in that interest is received by a lender, whereas profit is received by the owner of an asset, investment or enterprise; the rate of interest is equal to the interest amount paid or received over a particular period divided by the principal sum borrowed or lent.
Compound interest means. Due to compounding, the total amount of debt grows exponentially, its mathematical study led to the discovery of the number e. In practice, interest is most calculated on a daily, monthly, or yearly basis, its impact is influenced by its compounding rate. According to historian Paul Johnson, the lending of "food money" was commonplace in Middle Eastern civilizations as early as 5000 BC; the argument that acquired seeds and animals could reproduce themselves was used to justify interest, but ancient Jewish religious prohibitions against usury represented a "different view". The first written evidence of compound interest dates 2400 BC; the annual interest rate was 20%. Compound interest was important for urbanization. While the traditional Middle Eastern views on interest was the result of the urbanized, economically developed character of the societies that produced them, the new Jewish prohibition on interest showed a pastoral, tribal influence. In the early 2nd millennium BC, since silver used in exchange for livestock or grain could not multiply of its own, the Laws of Eshnunna instituted a legal interest rate on deposits of dowry.
Early Muslims called this riba, translated today as the charging of interest. The First Council of Nicaea, in 325, forbade clergy from engaging in usury, defined as lending on interest above 1 percent per month. Ninth century ecumenical councils applied this regulation to the laity. Catholic Church opposition to interest hardened in the era of scholastics, when defending it was considered a heresy. St. Thomas Aquinas, the leading theologian of the Catholic Church, argued that the charging of interest is wrong because it amounts to "double charging", charging for both the thing and the use of the thing. In the medieval economy, loans were a consequence of necessity and, under those conditions, it was considered morally reproachable to charge interest, it was considered morally dubious, since no goods were produced through the lending of money, thus it should not be compensated, unlike other activities with direct physical output such as blacksmithing or farming. For the same reason, interest has been looked down upon in Islamic civilization, with all scholars agreeing that the Qur'an explicitly forbids charging interest.
Medieval jurists developed several financial instruments to encourage responsible lending and circumvent prohibitions on usury, such as the Contractum trinius. In the Renaissance era, greater mobility of people facilitated an increase in commerce and the appearance of appropriate conditions for entrepreneurs to start new, lucrative businesses. Given that borrowed money was no longer for consumption but for production as well, interest was no longer viewed in the same manner; the first attempt to control interest rates through manipulation of the money supply was made by the Banque de France in 1847. The latter half of the 20th century saw the rise of interest-free Islamic banking and finance, a movement that applies Islamic law to financial institutions and the economy; some countries, including Iran and Pakistan, have taken steps to eradicate interest from their financial systems. Rather than charging interest, the interest-free lender shares the risk by investing as a partner in profit loss sharing scheme, because predetermined loan repayment as interest is prohibited, as well as making money out of money is unacceptable.
All financial transactions must be asset-backed and it does not charge any interest or fee for the service of lending. In economics, the rate of interest is the price of credit, it plays the role of the cost of capital. In a free market economy, interest rates are subject to the law of supply and demand of the money supply, one explanation of the tendency of interest rates to be greater than zero is the scarcity of loanable funds. Over centuries, various schools of thought have developed explanations of interest and interest rates; the School of Salamanca justified paying interest in terms of the benefit to the borrower, interest received by the lender in terms of a premium for the risk of default. In the sixteenth century, Martín de Azpilcueta applied a time preference argument: it is p
Analogy is a cognitive process of transferring information or meaning from a particular subject to another, or a linguistic expression corresponding to such a process. In a narrower sense, analogy is an inference or an argument from one particular to another particular, as opposed to deduction and abduction, in which at least one of the premises, or the conclusion, is general rather than particular in nature; the term analogy can refer to the relation between the source and the target themselves, a similarity, as in the biological notion of analogy. Analogy plays a significant role in problem solving, as well as decision making, perception, memory, invention, emotion, conceptualization and communication, it lies behind basic tasks such as the identification of places and people, for example, in face perception and facial recognition systems. It has been argued that analogy is "the core of cognition". Specific analogical language comprises exemplification, metaphors, similes and parables, but not metonymy.
Phrases like and so on, the like, as if, the word like rely on an analogical understanding by the receiver of a message including them. Analogy is important not only in ordinary language and common sense but in science, philosophy and the humanities; the concepts of association, correspondence and morphological homology, iconicity, metaphor and similarity are related to analogy. In cognitive linguistics, the notion of conceptual metaphor may be equivalent to that of analogy. Analogy is a basis for any comparative arguments as well as experiments whose results are transmitted to objects that have been not under examination. Analogy has been studied and discussed since classical antiquity by philosophers, scientists and lawyers; the last few decades have shown a renewed interest in analogy, most notably in cognitive science. With respect to the terms source and target there are two distinct traditions of usage: The logical and cultures and economics tradition speaks of an arrow, mapping, or morphism from what is the more complex domain or source to what is the less complex codomain or target, using all of these words in the sense of mathematical category theory.
The tradition in cognitive psychology, in literary theory, in specializations within philosophy outside of logic, speaks of a mapping from what is the more familiar area of experience, the source, to what is the more problematic area of experience, the target. In ancient Greek the word αναλογια meant proportionality, in the mathematical sense, it was indeed sometimes translated to Latin as proportio. From there analogy was understood as identity of relation between any two ordered pairs, whether of mathematical nature or not. Kant's Critique of Judgment held to this notion. Kant argued that there can be the same relation between two different objects; the same notion of analogy was used in the US-based SAT tests, that included "analogy questions" in the form "A is to B as C is to what?" For example, "Hand is to palm as foot is to ____?" These questions were given in the Aristotelian format: HAND: PALM:: FOOT: ____ While most competent English speakers will give the right answer to the analogy question, it is more difficult to identify and describe the exact relation that holds both between pairs such as hand and palm, between foot and sole.
This relation is not apparent in some lexical definitions of palm and sole, where the former is defined as the inner surface of the hand, the latter as the underside of the foot. Analogy and abstraction are different cognitive processes, analogy is an easier one; this analogy is not comparing all the properties between a hand and a foot, but rather comparing the relationship between a hand and its palm to a foot and its sole. While a hand and a foot have many dissimilarities, the analogy focuses on their similarity in having an inner surface. A computer algorithm has achieved human-level performance on multiple-choice analogy questions from the SAT test; the algorithm measures the similarity of relations between pairs of words by statistical analysis of a large collection of text. It answers SAT questions by selecting the choice with the highest relational similarity. Greek philosophers such as Plato and Aristotle used a wider notion of analogy, they saw analogy as a shared abstraction. Analogous objects did not share a relation, but an idea, a pattern, a regularity, an attribute, an effect or a philosophy.
These authors accepted that comparisons, metaphors and "images" could be used as arguments, sometimes they called them analogies. Analogies should make those abstractions easier to understand and give confidence to the ones using them; the Middle Age saw theorization of analogy. Roman lawyers had used analogical reasoning and the Greek word analogia. Medieval lawyers distinguished analogia legis and analogia iuris. In Islamic logic, analogical reasoning was used for the process of qiyas in Islamic sharia law and fiqh jurisprudence. In Christian theology, analogical arguments were accepted in order to explain the
Consumption of fixed capital
Consumption of fixed capital is a term used in business accounts, tax assessments and national accounts for depreciation of fixed assets. CFC is used in preference to "depreciation" to emphasize that fixed capital is used up in the process of generating new output, because unlike depreciation it is not valued at historic cost but at current market value; the term applies only to producing enterprises, but sometimes it applies to real estate assets. CFC refers to a depreciation charge against the gross income of a producing enterprise, which reflects the decline in value of fixed capital being operated with. Fixed assets will decline in value after they are purchased for use in production, due to wear and tear, changed market valuation and market obsolescence. Thus, CFC represents a compensation for the loss of value of fixed assets to an enterprise. According to the 2008 manual of the United Nations System of National Accounts, "Consumption of fixed capital is the decline, during the course of the accounting period, in the current value of the stock of fixed assets owned and used by a producer as a result of physical deterioration, normal obsolescence or normal accidental damage.
The term depreciation is used in place of consumption of fixed capital but it is avoided in the SNA because in commercial accounting the term depreciation is used in the context of writing off historic costs whereas in the SNA consumption of fixed capital is dependent on the current value of the asset." — UNSNA 2008, section H. p. 123 ) CFC tends to increase as the asset gets older if the efficiency and rental remain constant to the end. The larger the depreciation write-off, the larger the gross income of a business. Business owners consider this accounting entry as important; the Capital Consumption Allowance is the portion of the gross domestic product, due to depreciation. The Capital Consumption Allowance measures the amount of expenditure that a country needs to undertake in order to maintain, as opposed to grow, its productivity; the CCA can be thought of as representing the wear-and-tear on the country's physical capital, together with the investment needed to maintain the level of human capital.
Gross domestic product equals net domestic product + CCA. G D P = N D P + C C A How much the depreciation charge will be, depends on the depreciation rates which enterprises are permitted to charge for tax purposes, on how fixed assets themselves are valued for accounting purposes; this makes the assessment of CFC quite complex, because fixed assets may be valued for instance at: historic cost operating value accrual value current average sale-value in the market current replacement cost cash value economic value insured value scrap value deflated value By how much do fixed assets used in production decline in value, within an accounting period? How should they be valued? This can be arguable and difficult to answer, in practice, various conventions are adopted by accountants and auditors within the framework of legal rules and economic theory. In addition, the depreciation schedules imposed by tax departments may differ from the actual depreciation of business assets at market rates. Governments permit depreciation write-offs higher than true depreciation, to provide an incentive to enterprises for new investment.
But this is not always the case. Furthermore, businesses might engage in creative accounting and deliberately state their assets and liabilities held at a balance date, or interpret the figures in some other way, to increase the amount of depreciation write-offs, thus boost their income. For all these reasons, economists distinguish between different kinds of depreciation rates, arguing that the "true" consumption of fixed capital is the economic depreciation, assessed by relating financial data to mathematical models, to arrive at a figure that "seems credible"; the economic depreciation rate is based on observations of the average selling prices of assets at different ages. The economic depreciation rate is therefore a market-based depreciation rate, i.e. it is based on what an asset of a given age would sell for in the market. In national accounts, CFC is a component of value added or Gross Domestic Product, regarded as a cost of production, it is defined in general terms as the decline, in an accounting period, of the current value of the stock of fixed assets owned and used by a producer as a result of physical deterioration, normal obsolescence or normal accidental damage.
The UNSNA manual notes that "The consumption of fixed capital is one of the most important elements in the System... It may account for 10 per cent or more of total GDP." CFC is defined "in a way, theoretically appropriate and relevant for purposes of economic analysis". Its value may therefore diverge from depreciation recorded in business accounts, or as allowed for taxation purposes if there is price inflation. In principle, CFC is calculated using the actual or estimated prices and rentals of fixed assets prevailing at the time the produ
Accounting or accountancy is the measurement and communication of financial information about economic entities such as businesses and corporations. The modern field was established by the Italian mathematician Luca Pacioli in 1494. Accounting, called the "language of business", measures the results of an organization's economic activities and conveys this information to a variety of users, including investors, creditors and regulators. Practitioners of accounting are known as accountants; the terms "accounting" and "financial reporting" are used as synonyms. Accounting can be divided into several fields including financial accounting, management accounting, external auditing, tax accounting and cost accounting. Accounting information systems are designed to support related activities. Financial accounting focuses on the reporting of an organization's financial information, including the preparation of financial statements, to the external users of the information, such as investors and suppliers.
The recording of financial transactions, so that summaries of the financials may be presented in financial reports, is known as bookkeeping, of which double-entry bookkeeping is the most common system. Accounting is facilitated by accounting organizations such as standard-setters, accounting firms and professional bodies. Financial statements are audited by accounting firms, are prepared in accordance with accepted accounting principles. GAAP is set by various standard-setting organizations such as the Financial Accounting Standards Board in the United States and the Financial Reporting Council in the United Kingdom; as of 2012, "all major economies" have plans to converge towards or adopt the International Financial Reporting Standards. The history of accounting is thousands of years old and can be traced to ancient civilizations; the early development of accounting dates back to ancient Mesopotamia, is related to developments in writing and money. By the time of Emperor Augustus, the Roman government had access to detailed financial information.
Double-entry bookkeeping was pioneered in the Jewish community of the early-medieval Middle East and was further refined in medieval Europe. With the development of joint-stock companies, accounting split into financial accounting and management accounting; the first work on a double-entry bookkeeping system was published by Luca Pacioli. Accounting began to transition into an organized profession in the nineteenth century, with local professional bodies in England merging to form the Institute of Chartered Accountants in England and Wales in 1880. Both the words accounting and accountancy were in use in Great Britain by the mid-1800s, are derived from the words accompting and accountantship used in the 18th century. In Middle English the verb "to account" had the form accounten, derived from the Old French word aconter, in turn related to the Vulgar Latin word computare, meaning "to reckon"; the base of computare is putare, which "variously meant to prune, to purify, to correct an account, hence, to count or calculate, as well as to think."The word "accountant" is derived from the French word compter, derived from the Italian and Latin word computare.
The word was written in English as "accomptant", but in process of time the word, always pronounced by dropping the "p", became changed both in pronunciation and in orthography to its present form. Accounting has variously been defined as the keeping or preparation of the financial records of an entity, the analysis and reporting of such records and "the principles and procedures of accounting". Accountancy refers to the occupation or profession of an accountant in British English. Accounting has several subfields or subject areas, including financial accounting, management accounting, auditing and accounting information systems. Financial accounting focuses on the reporting of an organization's financial information to external users of the information, such as investors, potential investors and creditors, it calculates and records business transactions and prepares financial statements for the external users in accordance with accepted accounting principles. GAAP, in turn, arises from the wide agreement between accounting theory and practice, change over time to meet the needs of decision-makers.
Financial accounting produces past-oriented reports—for example the financial statements prepared in 2006 reports on performance in 2005—on an annual or quarterly basis about the organization as a whole. This branch of accounting is studied as part of the board exams for qualifying as an actuary; these two types of professionals and actuaries, have created a culture of being archrivals. Management accounting focuses on the measurement and reporting of information that can help managers in making decisions to fulfill the goals of an organization. In management accounting, internal measures and reports are based on cost-benefit analysis, are not required to follow the accepted accounting principle. In 2014 CIMA created the Global Management Accounting Principles; the result of research from across 20 countries in five continents, the principles aim to guide best practice in the d
Renting known as hiring or letting, is an agreement where a payment is made for the temporary use of a good, service or property owned by another. A gross lease is when the tenant pays a flat rental amount and the landlord pays for all property charges incurred by the ownership. An example of renting is equipment rental. Renting can be an example of the sharing economy. There are many possible reasons for renting instead of buying, for example: In many jurisdictions rent paid in a trade or business is tax deductible, whereas rent on a dwelling is not tax deductible in most jurisdictions. Financial inadequacy, such as renting a house when one is unable to purchase, i.e "renting by necessity". Reducing financial risk due to depreciation and transaction costs for real estate which might be needed only for a short amount of time; when something is needed only temporarily, as in the case of a special tool, a truck or a skip. When something is needed that may or may not be owned but is not in proximity for use, such as renting an automobile or bicycle when away on a trip.
Needing a cheaper alternative to buying, such as renting a movie: a person is unwilling to pay the full price for a movie, so they rent it for a lesser price, but give up the chance to view it again later. The tenant may want to leave the burden of upkeep of the property to his agents. There is no need to worry about maintenance. Renting keeps off-balance-sheet the debt that would burden the balance sheet of a company in case the property would have been bought. Renting is good for the environment if products are used more efficiently by maximizing utility rather than being disposed and under utilized. Short-term rental of all sorts of products represents an estimated €108 billion annual market in Europe and is expected to grow further as the internet makes it easier to find specific items available for rent. According to a poll by YouGov, 76% of people looking to rent would go to the internet first to find what they need, it has been reported that the financial crisis of 2007–2010 may have contributed to the rapid growth of online rental marketplaces, such as erento, as consumers are more to consider renting instead of buying in times of financial hardship.
Environmental concerns, fast depreciation of goods, a more transient workforce mean that consumers are searching for rentals online. A 2010 US survey found. Net income received, or losses suffered, by an investor from renting of one or two properties is subject to idiosyncratic risk due to the numerous things that can happen to real property and variable behavior of tenants. There is an implied, explicit, or written rental agreement or contract involved to specify the terms of the rental, which are regulated and managed under contract law. Examples include letting out real estate for the purpose of housing tenure, parking space for a vehicle, storage space, whole or portions of properties for business, institutional, or government use, or other reasons; when renting real estate, the person or party who lives in or occupies the real estate is called a tenant, paying rent to the owner of the property called a landlord. The real estate rented may be all or part of any real estate, such as an apartment, building, business office or suite, farm, or an inside or outside space to park a vehicle, or store things all under Real estate law.
The tenancy agreement for real estate is called a lease, involves specific property rights in real property, as opposed to chattels. In India, the rental income on property is taxed under the head "income from house property". A deduction of 30% is allowed from total rent, charged to tax; the time use of a chattel or other so called "personal property" is covered under general contract law, but the term lease nowadays extends to long term rental contracts of more expensive non-Real properties such as automobiles, planes, office equipment and so forth. The distinction in that case is long term versus short term rentals; some non-real properties available for rent or lease are: motion pictures on VHS or DVD, of audio CDs, of computer programs on CD-ROM. Transport equipment, such as an automobile or a bicycle. Ships and boats, in which case rental is known as chartering, the rent is known as hire or freight aircraft, in which case rental is known as chartering, or leasing if the rental is longer term specialized tools, such as a chainsaw, laptop, IT equipment or something more substantial, such as a forklift.
Large equipment such as cranes, oil rigs and submarines. A deckchair or beach chair and umbrella. Furniture items such as Wooden Cot, iron cot, coffee Table, dining table, Mattress. Designer handbags, jewelry and watches. Home Appliances items such as washing machines, Television, Microwave oven, Air-Conditioners In various degrees, renting can involve buying services for various amounts of time, such as staying in a hotel, using a computer in an Internet cafe, or riding in a taxicab; as seen from the examples, some rented goods are used on the spot, but they are taken along.