Interest Payable

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Interest Payable

A current liability that represents interest owed.

Tom needs $100,000 to start a business. The bank says they will loan him the money at 12% interest, payable every three months. This means that every year Tom has to pay the bank $12,000 (.12 x $100,000) until the money is repaid. $12,000 divided by 12 = $1,000 owed in interest each month. At the end of one month, Tom would have $1,000 in interest payable. He owes the bank $1,000 in interest for this month.

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