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Interest Expense

What Is An Interest Expense?

The interest expense is part of the company’s income statement. It’s a non-operating expense used to calculate the company’s net income. As a result, it helps determine a company’s profitability.

Interest expense is a type of expense that represents the interest that a company owes on any borrowed money. This expense includes bonds, loans, lines of credit, and others.

You can calculate interest expense by multiplying the interest rate by the outstanding principal amount of the debt. The interest expense shown on the income statement is the amount of interest accrued during the period covered by the financial statements, not necessarily the amount paid during that time.

While companies can deduct interest expenses from their taxes, it’s different for individuals. These expenses will depend on where they live and how the loan was used.

How Does It Work?

When a company takes out a loan, it incurs an interest expense. This expense is the borrowing money cost listed on the company’s balance sheet.

The interest expense shown on the income statement can appear in two different ways: 

  • Current liabilities: if the interest has been sent but not paid yet
  • Existing assets: also called β€œpre-paid assets,” is when they’ve spent the expense in advance. 

Interest tax-deductible expenses in the US

Several expenses are deductible when calculating an individual’s taxable income. They include mortgage interest, student loan interest, and interest on business loans. For example, interest on a personal loan used to purchase a car is not deductible.

Want to know more? Calculate your income and tax deductions you could achieve from it with our online wealth tools, or access more definitions here.

What is an income expense on income statement?

An income expense on an income statement is the amount of money a company spends to generate revenue. This includes items such as payroll, advertising, and rent. These expenses are used to calculate the company’s net income. The net income is the amount of money a company earns after accounting for all its costs. This can be used to determine a company’s profitability and whether or not it is making a profit.

What is the formula?

The formula for income expense is the following:

Interest expense = Principal x Rate x Time

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