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

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

Interest expense

, , , , , ,

One Response to Interest Expense

  1. Very Naked girls March 24, 2016 at 3:12 am #

    There’s definately a great deal to find out about this subject.

    I love all of the points you have made.

Leave a Reply

This site uses Akismet to reduce spam. Learn how your comment data is processed.