Accounting, specifically the calculation of interest, is a fundamental aspect of finance. Interest represents the cost of borrowing money or the return on lending it. In simple terms, it is the fee paid for the use of borrowed funds over time.
Calculating interest accurately is crucial for businesses, individuals, and the economy as a whole. It influences financial decisions, such as loan repayments, investment returns, and budgeting. Historically, the development of compound interest in the 17th century revolutionized finance by allowing interest to accrue on previously earned interest, leading to exponential growth.