Interest is usually associated with which of the following financial concepts?

• A. The time value of money
• B. The revenue recognition principle
• C. The cost principle
• D. The matching principle

Answer: (A)

Verified step by step guidance

1. Understand the concept of interest: Interest is the cost of borrowing money or the return on investment for lending money. It is closely tied to the idea that money has a value over time.
2. Learn about the time value of money: This principle states that a dollar today is worth more than a dollar in the future due to its earning potential. Interest is a key component of this concept, as it represents the compensation for the time value of money.
3. Review the revenue recognition principle: This principle dictates that revenue should be recognized when it is earned, not necessarily when cash is received. It is unrelated to the concept of interest.
4. Understand the cost principle: This principle states that assets should be recorded at their original purchase cost. It does not involve the concept of interest or the time value of money.
5. Examine the matching principle: This principle ensures that expenses are recorded in the same period as the revenues they help generate. It is not directly related to interest or the time value of money.