Accrual Basis Taxpayer

Economic Accrual of Interest
Economic accrual of interest refers to the cost of an indebtedness for a given period, calculated by multiplying the period’s interest rate by the unpaid loan balance, including prior accrued interest.
Unearned Interest
Unearned interest refers to interest that has been collected on a loan but cannot yet be counted as book earnings. This situation typically occurs with prepaid interest, which is taxable upon receipt by both cash and accrual basis taxpayers.

Accounting Terms Lexicon

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