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Interest expense is an income statement account which is used to report the amount of interest incurred on debt during a period of time.Interest payable is a current liability account that is used to report the amount of interest that has been incurred but has not yet been paid as of the date of the balance sheet.To illustrate the difference between interest expense and interest payable, let's assume that a company has $300,000 of debt with interest at8% per year. The company pays the monthly interest as required, which is15 days after each month ends. The loan began on January2 of the current year. If the company's accounting year ends on December31, the amount of interest expense for the year will be $24,000 ($300,000 x8%). The amount of interest payable at December31 will be December's interest of $2,000 ($30,000 x8% x1/12). The interest payable of $2,000 will be reported as a current liability since it is due within15 days of the balance sheet date.
The world of accounting is indeed full of terms and concepts. This may also be the reason why a lot of business owners often do not like taking accounting into their own hands. Thanks to accountants, they can rely on somebody else to do the math and recording for them.
Among these terms are interest expense and interest payable.
Interest Expense, on the one hand, is an income statement account whose primary purpose is to report the amount of interest that had been incurred by the company’s debt within a given period of time. Basically, this relates to the cost of having to borrow money. Furthermore, it is the price that a lender will charge a company for borrowing a certain amount of money.
On the other hand, Interest Payable refers to the amount which a company has to pay in the form of interest on its cash borrowings. In other words, it is a current liability account that is being used to report the amount of interest that had been incurred or acquired by a business but has not been paid yet as of the balance sheet’s date.
In order for your business to be better able to monitor these two types of interests, then, you should use accounting software for small business wherein you can get to enter data and then let the software do the rest. With such accounting software for small business, you are assured to be reminded of all these amounts that the company has to pay.
Interest expense relates to the cost of borrowing money. It is the price that a lender charges a borrower for the use of the lender's money. Interest expense is different from operating expense and CAPEX, for it relates to the capital structure of a company. Interest expense is usually tax-deductible.
Interest expense in the part of borrowing cost as defined in IAS-23. No doubt, it's cost of using money. This cost of using money has two different aspects of recording as per IAS-23.
i- if cost of using money (interest) is made for the qualifing asset, it should be capitalized and should not be expense out.
i- If it is not taken for the qualifying asset, it should be expense out.
Interest Payable denotes to the current liability at the balance sheet date to be outstanding/paid out.
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