What is Interest in Finance?

Interest is the cost of funds loaned to an entity by a lender. This cost is usually expressed as a percentage of the principal on an annual basis. Interest can be calculated as simple interest or compound interest, where compound interest results in a higher return to the investor. Depending on the tax laws of the applicable government entity, interest expense is tax deductible for a borrower.

What is Accrued Interest?

Accrued interest is the amount of interest that has accumulated on a debt since the last interest payment date. The concept is typically used to compile the amount of unpaid interest that is either receivable to or payable by a business at the end of an accounting period, so that the transaction is recorded in the correct period. This approach is only used under the accrual basis of accounting.

What is Interest in Equity Ownership?

The interest concept can refer to the equity ownership by an investor in a business entity. An investor has a controlling interest in a business with ownership of any amount exceeding 50% of its outstanding common stock. Conversely, any ownership amount less than this is considered a noncontrolling interest in the entity.