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Interest expense

How would you book the interest charged by a supplier because you paid an invoice late? Would it be a non operating interest expense or in some operating expense account?

Answers

K M
Title: Accountant
Company: Not Disclosed
(Accountant, Not Disclosed) |

One of the benefits from using an operating vs non-operating expense distinction is that the operating expenses have some relationship with business volume. The late payment interest charge has no relationship with business activity or volume so record as non-operating expense.

Werner Reisacher
Title: CEO
Company: Interlink Consulting
(CEO, Interlink Consulting) |

Depending on the size of your company and the way, financial information is handled in the daily management of the company, I would allocate such expenses to the department, that is responsible for the late payments. If Operations has not passed the invoice on to the accounts payable department in time, I would charge it to "product cost". Delays incurred by the accounting department goes against their budget. If delayed payments are a standard procedure used by the Finance Department to obtain "cheap credits", I would charge it a s a financing cost.

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