1. What is Accrued Interest?

Accrued interest is the amount of interest that has accumulated on a debt or investment but hasn't been paid yet. It's important for bonds, loans, and other financial instruments where interest payments are made periodically.

2. How Does the Calculator Work?

The calculator uses the standard accrued interest formula:

Where:

• \( Principal \) — The initial amount of money
• \( Annual\ Interest\ Rate \) — The yearly interest rate as a percentage
• \( Number\ of\ Days \) — Days since last payment or accrual period
• \( Days\ in\ Year \) — Typically 365 or 360 (banking convention)

3. Importance of Accrued Interest Calculation

Details: Accurate accrued interest calculation is crucial for financial reporting, bond pricing between coupon dates, loan accounting, and investment income recognition.

4. Using the Calculator

Tips: Enter the principal amount, annual interest rate (as percentage), number of days since last payment, and select the day count convention (365 or 360 days).

5. Frequently Asked Questions (FAQ)

Q1: What's the difference between 365 and 360 day year?
A: 360-day year is a banking convention that simplifies calculations. Actual/365 is more precise for exact periods.

Q2: Does this work for compound interest?
A: No, this calculates simple interest. Compound interest requires a different formula.

Q3: How is accrued interest shown on financial statements?
A: As either a payable (liability) or receivable (asset) depending on the context.

Q4: When is accrued interest typically paid?
A: Usually at regular intervals (monthly, quarterly, semi-annually) or at maturity.

Q5: Is accrued interest taxable?
A: Generally yes, in the year it's earned, regardless of when it's actually paid.