Accrued interest

Definition:

Accrued interest is the interest that has been earned on a 

financial investment or  loan but has not  yet been paid out or received. It accumulates over time, even though the  payment date has not yet arrived.

Example:

For instance, if you keep ₹10,000 in a savings account that earns 5% annual  interest, after 6 months you will have earned interest that is recorded but not yet paid to you.

This amount is referred to as accrued interest.

How to understand accrued interest:

Interest accumulates daily or monthly on deposits or loans.

Payments are typically made on specific future dates, such as quarterly or yearly.  Accrued interest helps record what has been earned or owed before the actual payment

occurs.

Importance of Accrued Interest:

It provides a clear understanding of how much interest has accumulated, aiding in financial  planning.