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Prior to starting InvestingAnswers, Paul founded and managed one of the most influential investment research firms in America, with more than 2 million monthly readers. While there, Paul authored and edited thousands of financial research briefs, was published on Nasdaq. com, Yahoo Finance, and dozens of other prominent media outlets, and appeared as a guest expert at prominent radio shows and i...

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Updated August 28, 2020

What is Accrued Interest?

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 does Accrued Interest work?

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 does Accrued Interest matter?

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

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