How do I figure out total interest on note for short-term notes payable?

 

We need to consider two things in calculating interest:

1.     For interest-bearing notes, we multiply the interest rate to the principal amount. If the note is payable in less than one year, multiply the annual interest to the fraction of the months it is outstanding. For example, if it is a 9-month notes payable, we multiply the annual interest by ¾.

Interest = Principal x Rate x Time in years

2.     For non-interest-bearing notes, we can discount it with the prevailing market interest at the time of issuance. The interest will be equal to the difference between the principal amount and the discounted amount.

Interest = Principal - (Principal x Discount/Market Rate)