Accrued Interest Adjustment

DEFINITION of 'Accrued Interest Adjustment'

The extra amount of interest that is paid to the owner of a convertible bond or other fixed income security. The amount paid is equal to the balance of interest that has accrued since the last payment date of the bond.

At the time, the investor converts a convertible bond, there will usually be one last partial payment made to the bondholder to cover the amount that has accrued since the last payment date of record. Also, when buying bonds in the secondary market, the buyer will have to pay accrued interest to the seller as part of the total purchase price.

BREAKING DOWN 'Accrued Interest Adjustment'

The accrued interest adjustment is always taxable as ordinary interest. The amount of the accrued interest adjustment will always vary, according to the number of days that elapse between the last payment date of record and the date of conversion.

RELATED TERMS
  1. Flat Bond

    A debt instrument that is sold or traded without accrued interest, ...
  2. Accrued Interest

    1. A term used to describe an accrual accounting method when ...
  3. Accrue

    The ability for something to accumulate over time. In finance, ...
  4. Accrued Liability

    An accounting term for an expense that a business has incurred ...
  5. Dated Date

    The date at which interest begins to accrue on a fixed-income ...
  6. Accrued Income

    Income that is earned in a fund or by company by providing a ...
Related Articles
  1. Investing

    What's Accrued Interest?

    Accrued interest has two meanings. In accounting, it is interest that has been earned, but the time for payment has not yet occurred.
  2. Professionals

    Accrued Interest

    Most bonds pay interest semi-annually, based on their maturity date. An investor who wishes to sell a bond between the interest payment dates will be owed the interest that has become due or ...
  3. Professionals

    Accrued Interest

    FINRA Series 7 Online Study Guide Section 4 Debt Securities
  4. Term

    Explaining Accrued Liability

    Accrued liability is an accounting term for an expense a business has incurred but has yet to pay.
  5. Options & Futures

    20 Investments: Convertible Security

    What Is It? A convertible, sometimes called a CV, is either a convertible bond or a preferred stock convertible. A convertible bond is a bond that can be converted into the company's common stock. ...
  6. Bonds & Fixed Income

    Convertible Bonds

    A convertible bond is a bond the investor can exchange for a specific amount of company stock at a later date. It combines a bond and a call option. The bondholder can benefit if there's an increase ...
  7. Bonds & Fixed Income

    Convertible Bonds: An Introduction

    Find out about the nuts and bolts, pros and cons of investing in bonds.
  8. Professionals

    D. Accrued Interest

    Accrued Interest Most bonds pay interest semi-annually, based on their maturity date. An investor who wishes to sell a bond between the interest payment dates will be owed the interest that has ...
  9. Financial Advisors

    Worried About Stocks? Try on Convertibles

    Convertibles are a good hedge against equity market risk (if you're o.k. with losing a bit of upside potential).
  10. Mutual Funds & ETFs

    3 Best High-Yielding Convertible Bond ETFs (CWB, ICVT)

    Discover how convertible bond ETFs can offer investors growth and income while hedging fixed income portfolios in a rising rate environment.
RELATED FAQS
  1. How do you find accrued interest on a bond?

    Learn how to determine the accrued interest on a bond. The price in the secondary market reflects the accrued interest the ... Read Answer >>
  2. What is the difference between accrued revenue and accrued interest?

    Find out about the difference between accrued revenue and accrued interest and how both of these concepts are used by businesses ... Read Answer >>
  3. What is the difference between accrued expense and accrued interest?

    Learn the difference between accrued expense and accrued interest, and find out how to calculate accrued interest on a short-term ... Read Answer >>
  4. How do you record adjustments for accrued revenue?

    Understand what accrued revenue is and what it's used to measure. Learn how an accountant would record an adjustment to accrued ... Read Answer >>
  5. How is an accrued interest entry made in accounting?

    Learn how to create common journal entries for accrued interest, including adjusting entries and delayed bond issues sold ... Read Answer >>
  6. What does it mean to capitalize accrued interest?

    Understand what it means when a company capitalizes accrued interest. Learn what constitutes accrued interest and what constitutes ... Read Answer >>
Hot Definitions
  1. Yield Curve

    A line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but differing maturity ...
  2. Stop-Limit Order

    An order placed with a broker that combines the features of stop order with those of a limit order. A stop-limit order will ...
  3. Keynesian Economics

    An economic theory of total spending in the economy and its effects on output and inflation. Keynesian economics was developed ...
  4. Society for Worldwide Interbank Financial Telecommunications ...

    A member-owned cooperative that provides safe and secure financial transactions for its members. Established in 1973, the ...
  5. Generally Accepted Accounting Principles - GAAP

    The common set of accounting principles, standards and procedures that companies use to compile their financial statements. ...
  6. DuPont Analysis

    A method of performance measurement that was started by the DuPont Corporation in the 1920s. With this method, assets are ...
Trading Center