Simple Interest : In simple interest rate we have to charge the interest on principal value at normal rate of interest continiously. Means interest received on capital amount will not added in capital account . Amount of the interest over of the period will remain the same untill there is no addittional cash flow is introduced. Compound Interest : Interest received under this methos will will be added to capital account and in the next period interest is given on principal plus interest on the last period. so in this cash interest will be change in every period because the last interest paid is added to basic amount