Accrued Interest

Interest that is owed on borrowed money or earned on an investment in a particular period [Cambridge Dictionary]. In accounting, accrued interest refers to the interest incurred on a loan or other financial obligation as of a specific date 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 accumulated since the last time a bond interest payment was made. Accrued interest is calculated as of the last day of the accounting period. For example, assume interest is payable on the 20th of each month, and the accounting period is the end of each calendar month. April will require accrual of 10 days of interest from the 21st to the 30th. It is posted as part of the adjusting journal entries at month-end. Accrued interest is reported on the income statement as a revenue or expense, depending on whether the company is lending or borrowing. In addition, the portion of revenue or expense yet to be paid or collected is reported on the balance sheet as an asset or liability. Because accrued interest is expected to be received or paid within one year, it is often classified as a current asset or current liability.

Sources:

Interest accrual. Cambridge Dictionary. Retrieved from: https://dictionary.cambridge.org/dictionary/english/interest-accrual

Kenton, W. (2022). Accrued Interest Definition & Example. Investopedia. Retrieved from: https://www.investopedia.com/terms/a/accruedinterest.asp