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Answer Posted / danny deb
1. A term used to describe an accrual accounting method when
interest that is either payable or receivable has been
recognized, but not yet paid or received. Accrued interest
occurs as a result of the difference in timing of cash flows
and the measurement of these cash flows.
2. The interest that has accumulated on a bond since the
last interest payment up to, but not including, the
settlement date.
1. For example, accrued interest receivable occurs when
interest on an outstanding receivable has been earned by the
company, but has not yet been received. A loan to a customer
for goods sold would result in interest being charged on the
loan. If the loan is extended on October 1 and the lending
company's year ends on December 31, there will be two months
of accrued interest receivable recorded as interest revenue
in the company's financial statements for the year.
2. Accrued interest is added to the contract price of a bond
transaction. Accrued interest is that which has been earned
since the last coupon payment. Because the bond hasn't
expired or the next payment is not yet due, the owner of the
bond hasn't officially received the money. If he or she
sells the bond, accrued interest is added to the sale price.
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