Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail
Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail

Accrued Interest

What it is:

Accrued interest refers to interest that builds up on a company's outstanding payables and receivables.  This interest has been accounted for, but not yet transacted.

How it works (Example):

Companies maintain accounts receivable for funds owed to them. In addition, they maintain accounts payable representing funds they owe. The interest on outstanding money in these accounts is accounted for as accrued interest on a company's balance sheet (under assets in the case of receivables and under liabilities in the case of payables), though it represents money that has not yet been paid or received. For instance, though a given company may not have received $100 in interest on an outstanding $1,000 receivable, it will continue to record it as an asset on the balance sheet for the period in which it accrued.

Why it Matters:

Since accrued interest accumulates as a function of time, it is irrespective of a company's operational productivity during a given period. 

Related Terms View All
  • Auction Market
    Though most of the trading is done via computer, auction markets can also be operated via...
  • Best Execution
    Let's assume you place an order to buy 100 shares of Company XYZ stock. The current quote...
  • Book-Entry Savings Bond
    Savings bonds are bonds issued by the U.S. government at face values ranging from $50 to...
  • Break-Even Point
    The basic idea behind break-even point is to calculate the point at which revenues begin...
  • Calendar Year
    If Company XYZ starts its fiscal year on January 1 and ends its fiscal year on December...