What is the accounting term for the cost of borrowing money?

The accounting term for the cost of borrowing money is interest expense. It represents the interest a borrower incurs on loans, bonds, notes, credit facilities, or other financing during an accounting period.

Interest expense is normally reported on the income statement, separately or within a net interest-income figure. Under accrual accounting, it is recognized as it accumulates, even if the cash payment will occur later. A typical calculation uses principal outstanding, the applicable interest rate, and the portion of the year covered. The related unpaid amount may be recorded as interest payable, a liability.

Interest expense is different from the principal repayment. Repaying principal reduces the debt balance; the interest portion is the financing cost. It is also distinct from depreciation and amortization, which allocate the cost of long-lived or intangible assets. Depending on tax rules and the nature of the borrowing, interest may be deductible, while some interest incurred during asset construction can be capitalized under applicable standards.