Interest Accrued

Finance

Quick Definition

Interest Accrued is the interest that has been earned or incurred over a period but has not yet been paid or received.

Detailed Explanation

Interest Accrued is recorded based on the accrual accounting principle, which means income or expense is recognized when it is earned or incurred, not when cash is exchanged.

It applies to loans, deposits, bonds, and other interest-bearing instruments.

Where It Is Used

  • Loans: Interest payable by borrower
  • Deposits: Interest earned by investor
  • Bonds: Interest accumulated between coupon payments

Why Interest Accrued Matters

  • Reflects true financial position
  • Important for accounting and reporting
  • Ensures accurate income and expense tracking

Interest Accrued vs Interest Paid

  • Accrued Interest: Earned but not yet paid
  • Paid Interest: Actually received or paid

Example

"If a loan earns ₹1,000 interest per month and 15 days have passed: 👉 Accrued Interest = ₹500 (not yet paid)"

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