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
