Definition

Noun 1. The cost incurred by a borrower for the use of borrowed money: "Interest expense" is an accounting and financial term that refers to the money a company or individual must pay on its debt obligations, such as loans, bonds, or lines of credit. It is recorded as an expense on the income statement.

Usage

"Interest expense" is used primarily in financial, accounting, and business contexts to describe a specific type of operating cost. It is a non-operating expense that reduces a company's pre-tax income. * A company reports its interest expense on its quarterly financial statements. * High interest expense can significantly reduce a firm's net profit. * The loan agreement details how the interest expense will be calculated.

Examples

• Noun:
  • The corporation's interest expense increased this year due to new bond issuances.
  • To improve its bottom line, the company is trying to reduce its interest expense by paying down debt.
  • Interest expense is tax-deductible for most businesses.

Advanced Usage

• "To accrue interest expense": To recognize an expense in the accounting records before the cash payment is made, reflecting the cost of borrowing for a specific period.
  • The company must accrue interest expense at the end of each month, even if the payment is quarterly.
• "Net interest expense": The total interest expense minus any interest income earned.
  • The bank's net interest expense was lower than expected due to high returns on its own investments.

Variants and Related Words

• Interest income (n): Money earned from lending funds or holding interest-bearing accounts. This is the opposite financial flow of interest expense.
  • For a bank, interest income is its primary revenue source.
• Finance cost (n): A broader term often used synonymously with interest expense on financial statements, which may include other costs related to financing.
• Debt service (n): The total cash required to cover the repayment of interest and principal on a debt for a particular period.

Synonyms

• Finance charge: A cost for borrowing, often used in consumer contexts (e.g., credit cards).
• Cost of debt: A financial metric representing the effective rate a company pays on its debts.

Related Phrases

• "To incur interest expense": To become liable for paying interest on borrowed funds.
  • By taking out this loan, the business will incur significant interest expense.
• "Cover interest expense": To have sufficient earnings to make the required interest payments.
  • The company's operating profit is more than enough to cover its interest expense.

Noun

1. interest paid on loans