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Accrued Interest

By on November 12, 2019

Accrued interest refers to interest that has been incurred or earned that has not been paid by the borrower or collected by the lender.

This is basically an accounting method that requires expenses or revenue that has occurred or gain to be recorded even though no movement of money has occurred.

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For example, if the payment date of a mortgage is on the 25h of the month, the month end accounts should show that interest for five days from the 26st to 30th has been incurred as an expense. This is even when it has yet to be paid for because the payment date would be on the 25th of the following month.

This is accrued interest. It has been fully expensed or fully earned, but not yet paid.

Depending on the accounts belonging a borrower or lender, accrued interest would be recorded as an accrued interest expense or an accrued interest revenue.

Other than the profit and loss statement, it can also appear on the balance sheet as an asset or liability.

In the financial world accrued interest can also refer to interest earned from bond investments that has yet to be paid out.



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