Accrued Interest

Loading the player...

What is 'Accrued Interest'

Accrued interest is the term used to describe an accrual accounting method when interest that is either payable or receivable has been recognized, but not yet paid or received. Accrued interest occurs as a result of the difference in timing of cash flows and the measurement of these cash flows.

2. The interest that has accumulated on a bond since the last interest payment up to, but not including, the settlement date.

BREAKING DOWN 'Accrued Interest'

1. For example, accrued interest receivable occurs when interest on an outstanding receivable has been earned by the company, but has not yet been received. A loan to a customer for goods sold would result in interest being charged on the loan. If the loan is extended on October 1 and the lending company's year ends on December 31, there will be two months of accrued interest receivable recorded as interest revenue in the company's financial statements for the year.

2. Accrued interest is added to the contract price of a bond transaction. Accrued interest is that which has been earned since the last coupon payment. Because the bond hasn't expired or the next payment is not yet due, the owner of the bond hasn't officially received the money. If he or she sells the bond, accrued interest is added to the sale price.

RELATED TERMS
  1. Accrue

    The ability for something to accumulate over time. In finance, ...
  2. Flat Bond

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

    The extra amount of interest that is paid to the owner of a convertible ...
  4. Accrued Income

    Income that is earned in a fund or by company by providing a ...
  5. Accrued Liability

    An accounting term for an expense that a business has incurred ...
  6. Accrued Revenue

    An asset class for goods or services that have been sold or completed ...
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. Professionals

    Accrued Interest For Government Notes And Bonds

    The calculation for accrued interest on US government securities uses an actual calendar year and each month contains the actual number of days. Keep in mind that interest accrues up to, but ...
  6. Investing Basics

    What is Accrued Income?

    In a mutual fund, accrued income is earnings that have accumulated over the year, but have not yet been paid out to shareholders.
  7. 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 ...
  8. Personal Finance

    Simple Interest Loans: Do They Exist?

    Yes, they do. Here is what they are – and how to use them to your advantage.
  9. Investing

    What does Accrual Mean?

    In accrual-based accounting, transactions are recorded on the books as they occur, even if payment has not yet been received or made. Accruals represent liabilities and non-cash-based assets. ...
  10. Bonds & Fixed Income

    Using Excel PV Function to compute Bonds PV

    To determine the value of a bond today - for a fixed principal (par value) to be repaid in the future at any predetermined time - we can use an Excel spreadsheet.
RELATED FAQS
  1. 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 >>
  2. 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 >>
  3. 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 >>
  4. 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 >>
  5. 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 >>
  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