How to Calculate Interest Payable in Accounting

by C. Taylor

Businesses frequently borrow money to finance their operations. These loans almost always accrue interest. The interest rate is always expressed as an annual rate, which is used to calculate the amount of interest accrued in the year. Depending on the terms of the loan, businesses may elect to pay interest at the end of the year or use periodic payments, such as monthly or quarterly payments. You can calculate interest payments using a simple interest formula, which is modified for the period used.

1. Divide the annual interest rate into decimal format by dividing by 100. For example, an 8 percent annual interest rate would be 0.08.

2. Multiply this rate by the loan amount to calculate annual interest rate. In the example, a $20,000 loan would accrue $1,600 in interest payable during the year.

3. Multiply the annual interest by the fraction of a year to calculate periodic interest. Continuing with the example, multiply by 1/12 to calculate the monthly interest payable of $133.33. For a certain number of days, the fraction would the the number of days over 365, such as 45/365 to calculate the interest on 45 days.

Photo Credits

  • Comstock Images/Comstock/Getty Images