Interest Expense – True or False

Practice Question

Intro to Financial Accounting
Non-Current Liabilities
Interest Expense Calculations
True or False

Interest expense is recorded when cash interest payments are made.

Answer +
Correct Answer: FALSE
Explanation +

Under the accrual basis of accounting, interest expense must be recorded in the period in which it is incurred—not when cash is paid. This ensures that the financial statements accurately reflect liabilities and expenses as they occur.

For example, if a company owes interest at the end of an accounting period but hasn't yet paid it, it should still record the expense with a corresponding liability (e.g., interest payable).