INTEREST EXPENSE Meaning and
Definition
-
Interest expense refers to the cost incurred by an individual or organization for borrowing funds or utilizing credit facilities. It represents the interest payments made on loans, lines of credit, mortgages, or other forms of debt. When an entity borrows money, the lender imposes an interest rate on the loan amount, and the interest charged is the cost of borrowing the funds. This interest expense is usually recorded on the income statement as an expense, reducing the entity's net income.
For businesses, interest expense is an important component of their financial statements as it directly impacts profitability. Higher interest expenses can reduce net income and have a negative effect on the company's bottom line. It is particularly crucial for companies considering taking on more debt to carefully analyze their interest expense to assess the financial viability of such a venture.
Interest expense is also relevant for personal finance, as individuals may have loans, credit card debt, or mortgages, all of which accrue interest. Each time a payment is made on these debts, a portion goes towards the principal amount borrowed, while the rest is allocated to the interest expense. Over time, interest expense can significantly add to the total cost of borrowing, especially if the interest rate is high or the debt is not paid off quickly.
Understanding interest expense is important for both businesses and individuals to effectively manage their debts, evaluate their financial health, and make informed decisions regarding borrowing and credit utilization.
Common Misspellings for INTEREST EXPENSE
- unterest expense
- jnterest expense
- knterest expense
- onterest expense
- 9nterest expense
- 8nterest expense
- ibterest expense
- imterest expense
- ijterest expense
- ihterest expense
- inrerest expense
- inferest expense
- ingerest expense
- inyerest expense
- in6erest expense
- in5erest expense
- intwrest expense
- intsrest expense
- intdrest expense
Etymology of INTEREST EXPENSE
The word "interest" is derived from the Latin word "interest" which means "it interests" or "it concerns". The term originated in the early 15th century to describe the charge for borrowing money, particularly in commercial or financial contexts.
The word "expense" comes from the Old French word "espense" meaning "spending" or "expenditure". It can be traced back to the Latin word "expendere", which means "to weigh out" or "pay out".
When used together, "interest expense" refers to the cost or charge incurred for borrowing money or using credit. The term is commonly used in accounting and finance to denote the amount of interest paid by a borrower on a loan or credit facility.
Similar spelling words for INTEREST EXPENSE
Infographic
Add the infographic to your website:
