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Interest Expense is usually calculated by (Carrying Value of Liability*Yield Rate * Time). Carrying Value is the actual present value of the liability (including discounts earned, etc) Interest Expense is the money that actually goes out of the firm. Interest Paid is calculated by (Face Value of Liability*Interest Rate * Time). Interest Paid is the fair-value of dues from the firm, but is not the actual value of the liability. Interest Expense is the amount reflected in the books of the firm, and is usually higher than Interest Paid. This is because Interest Expense often includes the cost of discount amortization(this is necessary when the bond/other liability was gained at a discount. The amortization is worked into the formula above, and hence gives an amount higher than interest paid. This gives the total interest expensed by the Company.) Hope this helps. Cheers
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What is the difference between drawing account and expense account?
A Drawing account is used for withdrawals by owners of the entity. This is commonly used in sole proprietoships and partnerships. The withdrawals are the distribution of the profits to the owners. In corporations dividends declared reduce retained earnings in a similar manner because dividends are distributions of profits to the stockholders. An expense account is used for costs incurred by the entity such as salaries, depreciation, rent, interest, insurance, advertising, and taxes.
Why do you use an after tax figure for cost of debt but not for cost of equity?
Because interest is a tax-deductible expense for the firm, but dividends paid to shareholders are not.
Is the straight-line amortization or effective interest rate method better?
This method is preferred over the straight-line method of amortizing bond discount or bond premium. Amortization of a bond discount or premium is the difference between the interest expense and the nominal interest payment. The amortization entry is: Interest Expense (effective interest rate x carrying value) Cash (nominal interest rate x face value) Bond Discount (for the difference)
Are dividends a form of a business expense?
No they are considered earnings to be paid to stockholders.
Is sales revenue an expense or asset?
Sales is a revenue not an expense or asset while difference between sales and expense is profit which is liability for business.
Which of Notes Payable Cash Interest Expense and Dividends are decreased with a debit?
Notes Payable - I hope that wasn't for an exam.
What is the difference between drawing account and expense account?
A Drawing account is used for withdrawals by owners of the entity. This is commonly used in sole proprietoships and partnerships. The withdrawals are the distribution of the profits to the owners. In corporations dividends declared reduce retained earnings in a similar manner because dividends are distributions of profits to the stockholders. An expense account is used for costs incurred by the entity such as salaries, depreciation, rent, interest, insurance, advertising, and taxes.
What is the difference between net interest margin and net spread?
net interest margin=(Income interest-Expense interest)/average earning assets net spread=Income interest/average earning assets - Expense interest/average deposits and other funds
Why do you use an after tax figure for cost of debt but not for cost of equity?
Because interest is a tax-deductible expense for the firm, but dividends paid to shareholders are not.
Is the straight-line amortization or effective interest rate method better?
This method is preferred over the straight-line method of amortizing bond discount or bond premium. Amortization of a bond discount or premium is the difference between the interest expense and the nominal interest payment. The amortization entry is: Interest Expense (effective interest rate x carrying value) Cash (nominal interest rate x face value) Bond Discount (for the difference)
Are dividends a form of a business expense?
No they are considered earnings to be paid to stockholders.
What is the difference between finance expense and administrative expense?
Finance expense is that amount paid for the acquisition and using debt or equity finance like interest, brokerage fee, etc Administrative expense is that amount which is used to run day to day activities of business like admin staff salaries rent insurance etc
What journal entry accrues interest expense?
DR - Interest Expense CR - Interest Payable
What is the difference between revenue and expense called?
Net Income
Is sales revenue an expense or asset?
Sales is a revenue not an expense or asset while difference between sales and expense is profit which is liability for business.
Is interest expense a selling or general and administrative expense?
Interest expense is neither selling or administrative, and it's too significant to be called a general expense. Interest expense is usually called a finance expense and is usually listed separately from SG&A, on the Income Statement
Where does interest expense in the income statement?
Interest expense is shown at debit side of income statement because it is an expense for business.
