Glossary

Accrued vs cash interest

Accrued vs cash interest distinguishes interest recognised in the accounts as it builds up from interest actually paid out in cash — they can differ in timing.

2 min read

AccruedRecognised as it arises

CashWhen actually paid

Definition

Under accrual accounting, interest is recorded as an expense as it accrues, regardless of when it is paid. Cash interest is the amount that leaves the bank. On a rolled-up or annually-paid facility, accrued interest can sit in the accounts as a liability well before any cash moves, which matters for profit and covenant tests.

In plain terms

Your profit-and-loss can show an interest cost before the money has actually gone — the accounts and the bank balance run on different clocks.

Why it matters for your company

Track accrued interest for covenants and profit, and cash interest for cash flow — they are not the same number. See accrued interest and interest cover.

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