Interest Expense

Interest Expense

See Also:
Interest Expense Formula
What is Compound Interest
Effective Rate of Interest Calculation
Nominal Interest Rate
When is Interest Rate Not as Important in Selecting a Loan?
Capitalized Interest

Interest Expense Definition

Interest expense, defined as a non-operating expense on the income statement, occurs anywhere money is borrowed. Consider this part of a company’s financing activities. Interest expense represents the company’s cost of borrowing money. It is calculated as the interest rate multiplied by the principal amount of the loan or debt. This type of expense can be interest payments on loans, bonds, or other debt instruments.

Interest Expense Explanation

Interest expenses may be recorded on the balance sheet as current liabilities before they are expensed. Record it in a liabilities account, if it was accrued prior to being paid. This liabilities account is also interest payable. This represents borrowing costs that the company has incurred but not yet paid.
Also, this expense can be recorded on the balance sheet as current assets if they are prepaid. This means that you have paid for them before they are due. Until they are due, you cannot recognize them as expenses according to the loan agreement. Record these payments as an asset on the balance sheet before they are expensed. Use the term prepaid interest interchangeably here.
If you want to increase the value of your organization, then click here to download the Know Your Economics Worksheet.
Interest expense
[box]Strategic CFO Lab Member Extra
Access your Strategic Pricing Model Execution Plan in SCFO Lab. The step-by-step plan to set your prices to maximize profits.
Click here to access your Execution Plan. Not a Lab Member?
Click here to learn more about SCFO Labs[/box]
Interest expense

ARTICLES YOU MIGHT LIKE

The Struggles of Private Company Accounting

Hiring the right accountant  When I meet a business owner operating at a successful $10 million in revenue, they often mention, “My CPA”… I immediately know that CEO/Entrepreneur is referring to their Tax CPA.  That is because one thing that all Entrepreneurs have in common is that they must file a tax return.  So, from

Read More »

Financial Ratios

See also:Quick Ratio AnalysisPrice to Book Value AnalysisPrice Earnings Growth Ratio AnalysisTime Interest Earned Ratio Analysis Use of Financial Ratios Financial Ratios are used to measure financial performance against standards. Analysts compare financial ratios to industry averages (benchmarking), industry standards or rules of thumbs and against internal trends (trends analysis). The most useful comparison when

Read More »

CPA’s are Specialized

The Difference in CPAs Looking back at my career I don’t know how many times I have introduced myself to someone and they ask, “Are you a CPA?” and I say yes. Then they tell me “you must be very busy with tax season” and I look at them with a bit of awe and

Read More »

JOIN OUR NEXT SERIES

Financial Leadership Workshop

MARCH 28TH-31ST 2022

THE ART OF THE CFO®

Financial Leadership Workshop

Days
Hours
Min

September 12-15th 2022

Days
Hours
Min
SHARE THIS ARTICLE

JOIN THE NEXT STRATEGIC CFO™ WORKSHOP SERIES

Strategic CFO™ Financial Leadership Workshop
The Art Of The CFO®

Days
Hours
Min

December 5-8th, 2022