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. Flat Bond

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

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

    An asset class for goods or services that have been sold or completed ...
  4. Accrued Benefits

    Coverage earned by an employee on a pension plan, based on years ...
  5. Accruals

    Accounts on a balance sheet that represent liabilities and non-cash-based ...
  6. Accrued Monthly Benefit

    The earned pension benefit that will be paid to an employee at ...
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. 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.
  3. 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. ...
  4. 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.
  5. Bonds & Fixed Income

    What is a Dirty Price?

    The dirty price of a bond includes the present value of all future cash flows.
  6. Credit & Loans

    All Your Questions About Loan Interest Rates

    If you think interest rates don’t really matter -- think again. Interest rates have a huge impact on your finances.
  7. Bonds & Fixed Income

    Savings Bonds For Income And Safety

    Bonds offer undeniable benefits to investors, including safety and tax advantages.
  8. Markets

    Operating Cash Flow: Better Than Net Income?

    Differences between accrual accounting and cash flows show why net income is easier to manipulate.
  9. Bonds & Fixed Income

    Advanced Bond Concepts: Bond Pricing

    It is important for prospective bond buyers to know how to determine the price of a bond because it will indicate the yield received should the bond be purchased. In this section, we will run ...
  10. Home & Auto

    How To Choose The Right Bond For You

    Bond investing is a stable and low-risk way to diversify a portfolio. However, knowing which types of bonds are right for you is not always easy.
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 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 >>
  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. 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 >>
  6. Why do businesses calculate accrued expenses?

    Find out why businesses calculate accrued expenses, how they are applied and what circumstances give rise to accrual entries ... Read Answer >>
Hot Definitions
  1. MACD Technical Indicator

    Moving Average Convergence Divergence (or MACD) is a trend-following momentum indicator that shows the relationship between ...
  2. Over-The-Counter - OTC

    Over-The-Counter (or OTC) is a security traded in some context other than on a formal exchange such as the NYSE, TSX, AMEX, ...
  3. Quarter - Q1, Q2, Q3, Q4

    A three-month period on a financial calendar that acts as a basis for the reporting of earnings and the paying of dividends.
  4. Weighted Average Cost Of Capital - WACC

    Weighted average cost of capital (WACC) is a calculation of a firm's cost of capital in which each category of capital is ...
  5. Basis Point (BPS)

    A unit that is equal to 1/100th of 1%, and is used to denote the change in a financial instrument. The basis point is commonly ...
  6. Sharing Economy

    An economic model in which individuals are able to borrow or rent assets owned by someone else.
Trading Center