When we talk about business and small or medium-sized enterprises, we use terms that clearly must be managed, especially when we are entrepreneurs. The commercial area is very extensive, so today we will talk about a part of it, which is the difference between accrued interest and interest income .
But first we want to explain the concepts of each of these terms and then have a broad understanding of them.
What is the difference between accrued interest and income interest?
What is accrued interest?
Interest received is equivalent to the accumulated monetary amount the result of a financial investment or a deficit over a period of time that has elapsed. Accrued interest can be received as a liability or as an asset, since when it falls into a payable obligation, it becomes a liability. And what are considered assets are those that come from the interests of a product of the return on an investment.
A key factor of accrued and important interest is that they serve to organize the additional amount on any date. For example, a customer receives a $ 5.000 bank loan with a 10% interest rate to repay it over a year. At the end of the year, the customer pays $ 5.500, which means he pays the 5.000 of the loan plus 500 of accrued interest.
The $ 500 represents an expense for the customer, but for the bank it represents income generated, i.e. the $ 500 is accrued interest.
What is the interest accrued for?
That facilitates the function of estimate of the accounting for a projection of future interest income, providing information on payment times.
What is Income Interest?
Interest on income is what it is are credited at the time of settlement , regardless of whether it is the amount referred to. In other words, they correspond to sales on credit, bonds or commercial or financial interest.
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these are reflected in the accounting on the date on which interest is paid regardless of whether the credit or the total obligation are paid at the same time. For example, if a company has 10 shares, the dividends taken from them should be entered as interest on income. Regardless of whether the capital contributed to said shares or real estate continues on the stock market, represented in said shares.
What is income interest for?
This accounting tool is useful when making balances and presenting accounting reports, allowing you to anchor income to its original sources. It also serves to apply income justice and to issue reports on sources, without the need for accounting maneuvers.
We have already seen what income and accrued interest consist of, now we will explain the difference between the two in the next section.
Differences between interest on income and accruals
Many people get confused between accrued interest and income interest, this is due to their similarity, but it is slightly different. It is essential to handle these terms correctly, as they are accounting and fiscal tools , in order not to face a tax crime.
Fiscal policy is the movements a government makes to control interest rates, the money supply, and jobs in the economy at large.
Differences between interest on income and accrued interest.
- The interest accrued refers to inputs or outputs indifferently.
- Interest on income it is only inbound and not outbound .
- To apply a financial estimate, accrued interest is taken into account.
- Interest on income is mainly used to make financial contributions.
- The capital gain marks the cut-off points of the interest received when credits, loans or bonds with an installment period are included.
- The recorded interest is taken into account as an absolute amount and is included in the accounting projection at the time of entry into the system, whether justified or not at the time.
Since you have been able to analyze these are the differences that exist between accrued interest and interest on income , in this way there will be no confusion between the two.
We hope this article will help you understand and clarify your doubts with the terms that are handled in financial accounting and you will also be better prepared financially.