Accrued Interest
In accounting, accrued interest refers to the amount of interest that has been incurred, as of a specific date, on a loan or other financial obligation but has not yet been paid out. Accrued interest can either be in the form of accrued interest revenue, for the lender, or accrued interest expense, for the borrower.The term accrued interest also refers to the amount of bond interest that has accumulated since the last time a bond interest payment was made.
Accrued Interest
Definition
In accounting, accrued interest refers to the amount of interest on a loan or other financial obligation that has been incurred but not yet paid by a specific date. Accrued interest can be the interest income for the borrower or the interest expense for the lender. It also refers to the accumulated bond interest since the last payment.
Origin
The concept of accrued interest originates from the accrual basis of accounting, which requires that income and expenses be recognized when they occur, not when cash is actually received or paid. This concept helps businesses and investors more accurately reflect their financial position and performance.
Categories and Characteristics
Accrued interest is mainly divided into two categories: accrued interest income and accrued interest expense. Accrued interest income refers to the interest that the borrower should pay but has not yet paid, which is reflected as a liability in the borrower's financial statements. Accrued interest expense refers to the interest that the lender should receive but has not yet received, which is reflected as an asset in the lender's financial statements.
Specific Cases
Case 1: A company borrows 1 million yuan on January 1, 2024, with an annual interest rate of 5%, and pays interest every six months. By June 30, 2024, the company should pay interest of 1 million yuan * 5% / 2 = 25,000 yuan. If the company does not pay this interest on June 30, then this 25,000 yuan becomes accrued interest and is recorded in the company's financial statements.
Case 2: An investor buys a bond with a face value of 100,000 yuan and an annual interest rate of 6%, paying interest once a year. If the investor sells this bond on September 13, 2024, and the last interest payment date was January 1, 2024, then the interest from January 1 to September 13 is 100,000 yuan * 6% * (255/365) ≈ 4,191.78 yuan, which is the accrued interest.
Common Questions
1. What is the difference between accrued interest and actual paid interest? Accrued interest is the interest that has been incurred but not yet paid, while actual paid interest is the interest that has already been paid.
2. Why record accrued interest? Recording accrued interest can more accurately reflect a company's financial position and performance, in line with the accrual basis of accounting.
