What is accrued interest?

[ankita]

I often hear the term accrued interest when dealing with loans and investments. From my understanding, it refers to the interest that has been earned or incurred but not yet paid. Can someone explain with a simple example how accrued interest is calculated and recorded in financial statements?

 

[Mayank]

Accrued interest is the interest that builds up on a loan, bond, or investment but hasn’t been paid yet. It represents the amount owed from the last payment date to the present, recorded as income or expense.

 

[jainnorton]

Accrued interest is the interest that has been earned on a bond, loan, or other financial obligation but has not yet been paid out to the holder. It accumulates between payment periods and is recorded as a liability or asset.

 

[danisjohn]

Accrued interest is the amount of interest that has accumulated on a loan, bond, or investment but has not yet been paid or received. It represents the cost of borrowing or the earnings from lending between payment dates and is recorded as an adjusting entry in financial accounting.

 

[Shane Warne]

Accrued interest is the interest earned or owed on a loan, bond, or account that has accumulated but not yet been paid. It builds up daily between payment dates. For borrowers, it’s an expense, and for investors or lenders, it’s income that will be received later.

 

[robertwilliam]

Imagine taking out a student loan for $10,000 with a 6% Fixed interest rate and a 6-month grace period. You decide to pay nothing while you're in school and during your college years, the interest accrues. By the time you graduate, you owe $12,700 instead of $10,000 because of accrued interest.