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What is accrued interest?

Accrued interest is the amount of loan interest that has already occurred, but has not yet been paid to the lender by the borrower.

The accrued interest will be reported by the borrower as both

  1. an expense on its income statement, and
  2. a current liability on its balance sheet.

The accrued interest will be reported by the lender as both

  1. revenue on its income statement, and
  2. a current asset on its balance sheet.

Accrued interest is likely to require adjusting entries by both the borrower and the lender prior to issuing their financial statements.