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How to Calculate Interest Expense.
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How to Calculate Interest Expense.

Rosemary Njeri

Interest expense is a non-operating expense shown on the income statement. It represents interest payable on any borrowings, loans or lines of credit.

Formula to calculate interest expense by simple interest method .

Calculate Interest Expense.

Example:

An individual took a loan of $ 5,000 from a bank. The interest rate was 5% and he was to payback in 3 years. Determine his interest expense.

Calculate Interest Expense.

Therefore, the interest expense is $750.

Formula to calculate interest expense by compounding interest method.

Calculate Interest Expense.
  • P = Principal.
  • t = No. of years.
  • n = No. of compounding per year.
  • r = Annualized rate of interest.

Example:

A man took a loan of $ 30,000 to be paid back at a 5% interest per annum compounded semi-annually, to be paid back after 5 years. Determine the interest expense.

Calculate Interest Expense.

Therefore, the interest expense is $ 8,402.54.

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