What is Interest Expense and how is it calculated?


The Monthly Treasury Statement dataset provides information on receipts and outlays of the Federal Government. Refer to the chart above for the intended data type of each field. Net Interest Expensemeans, for any period, Interest Expense for such period minus interest on Nonrecourse Indebtedness.

The amount of interest you earn depends on the interest https://intuit-payroll.org/ and the amount of money you invest. Interest income is typically taxable, which means you’ll have to pay taxes on it. It’s also important to note that interest expense can be calculated on a monthly, quarterly, or annual basis, depending on the terms of the loan or credit agreement.

Interest Expenses: How They Are Recorded On Income Statement

We will also discuss the impact that interest expense can have on a business’s bottom line, and how it can be managed to optimize profitability. Whether you are a business owner or a financial professional, this article will provide valuable insights into the importance of interest expense and its role in financial management. You can deduct investment interest expense against any investment income — but only if you itemize your tax deductions. The easiest way to avoid paying interest expense is to avoid buying stocks on margin. The simplest way to calculate interest expense is to multiply a company’s total debt by the average interest rate on its debts.


Typically, loans are priced using a floating interest rate, whereas bonds are priced at a fixed interest rate. Investopedia requires writers to use primary sources to support their work. These include white papers, government data, original reporting, and interviews with industry experts. We also reference original research from other reputable publishers where appropriate. You can learn more about the standards we follow in producing accurate, unbiased content in oureditorial policy.

What is interest expense?

Amount values are provided for the What Is Interest Expense? month and the fiscal year-to-date. This entry ensures the grocery store appropriately accounts for the payment that will be made after the year-end close of December 31, 2015. So, Roberta will pay more under the compound interest expense formula, since she will owe the bank $19,747. Credit Card Debt – Credit card debt has a very high interest rate, around 15% – 30%. Auto Loans – Most people finance their vehicles with an auto loan. The interest expense on an auto loan is usually around 3% – 7%.

Simple interest is charged on the principal, or the original amount borrowed. Compound interest is charged on both the principal and the accumulated interest of a loan. Due to this, compound interest will always be higher than simple interest. Interest expense is considered a debt obligation of a company, which must be paid back regardless of whether the company is profitable or not. Simple interest is sometimes used in some consumer loans, such as short-term personal loans and auto loans. Compound interest is more common and is used in loans such as mortgages, student loans, and credit card debt.