What Is Interest Expense in Accounting?

Interest expense is the total amount a business accumulates (accrues) in interest on its loans. It’s the cost of borrowing funds, in short. Businesses take out loans to add inventory, buy property or equipment or pay bills.

Interest expense is important because if it’s too high it can significantly cut into a company’s profits. Increases in interest rates can hurt businesses, especially ones with multiple or larger loans.

Businesses with more assets are hit hardest by interest rate increases. For example, businesses that have taken out loans on vehicles, equipment or property will suffer most.

The Globe and Mail suggests talking to your lender about your debt repayment plan should interest rates rise. It may also be time to look at your business plan and make sure it can accommodate rate increases. Otherwise, staying profitable and growing your business could prove challenging.

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Identify the time period, which the interest expense would be calculated.
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