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What is interest payable?

Author:
Harold Averkamp, CPA, MBA

Definition of Interest Payable

Interest payable is the interest expense that has been incurred (has already occurred) but has not been paid as of the date of the balance sheet. [Interest payable does not include the interest for periods after the date of the balance sheet.]

Example of Interest Payable

Let’s assume that on December 1 a company borrowed $100,000 at an annual interest rate of 12%. The company agrees to repay the principal amount of $100,000 plus 9 months of interest when the note comes due on August 31.

On December 31, the amount of interest payable is $1,000 ($100,000 X 12% X 1/12) and the company’s balance sheet should report the following current liabilities:

  • Notes payable of $100,000
  • Interest payable of $1,000

Nothing is reported for the $8,000 of future interest.

The company’s January 31 balance sheet should report the following current liabilities:

  • Notes payable of $100,000
  • Interest payable of $2,000
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About the Author

Harold Averkamp

For the past 52 years, Harold Averkamp (CPA, MBA) has worked as an accounting supervisor, manager, consultant, university instructor, and innovator in teaching accounting online. He is the sole author of all the materials on AccountingCoach.com.

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