Accrued Interest Cost

Accured interest cost, abbreviated as AIC, is the interest expense that has accumulated on a debt or financial instrument over a certain period of time but has not yet been paid.  It represents the portion of interest that has accrued since the last interest payment date or since the inception of the debt instrument.

Accrued interest cost is particularly relevant for bonds, loans, and other fixed-income securities where interest payments are made periodically, such as monthly, quarterly, semi-annually, or annually.  The accrued interest cost reflects the interest that the borrower or issuer owes to the lender or bondholder.  For example, if a company issues bonds with a semi-annual interest payment schedule and an investor purchases the bonds between payment dates, the investor will be entitled to receive the accrued interest for the period of time they held the bonds before the next interest payment date.  The accrued interest cost represents the amount of interest that has accrued during that period but has not yet been paid to the investor.

Accrued interest cost is recorded as a liability on the borrower's or issuer's books and as an asset on the lender's or bondholder's books until it is paid or received.  It is an important consideration for both borrowers and lenders in financial reporting, budgeting, and cash flow management.

It's worth noting that accrued interest cost is different from accrued interest, which refers to the accumulated interest income earned on an investment but not yet received or paid.

 

Accrued Interest Cost Formula

\( AIC = IA \; ( t \;/\; 365 ) \; i \;/\; 100    \)

Symbol

\( AIC \) = accrued interest cost

\( IA \) = investment amount

\( t \) =  time period

\( i \) = interest rate