Interest expense is an income statement account which is used to report the amount of interest incurred on debt during a period of time.

Interest payable is a current liability account that is used to report the amount of interest that has been incurred but has not yet been paid as of the date of the balance sheet.

To illustrate the difference between interest expense and interest payable, let’s assume that a company has $300,000 of debt with interest at 8% per year. The company pays the monthly interest as required, which is 15 days after each month ends. The loan began on January 2 of the current year. If the company’s accounting year ends on December 31, the amount of interest expense for the year will be $24,000 ($300,000 x 8%). The amount of interest payable at December 31 will be December’s interest of $2,000 ($30,000 x 8% x 1/12). The interest payable of $2,000 will be reported as a current liability since it is due within 15 days of the balance sheet date.

Learn more about the Income Statement, Balance Sheet, and Adjusting Entries.

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