What is Interest Suspense Account

Fixed rate interest liabilities on fixed term loans are shown separately in the balance sheet using the interest suspense account.

Interest and the Balance Sheet

The rule concerning interest charges is that they are generally only applied to the accounts as and when they arise.

In the case of formal agreements where a loan carries fixed repayment terms at fixed rates of interest, these are required to be disclosed in the balance sheet.

The Interest Suspense Account

Take for example an asset finance loan of £3,000 taken out at the beginning of the financial year with interest fixed at 7% p.a. (£210 p.a.) repayable over 48 months.

An interest suspense account is first created for the 36 months interest payable of £630 that remains at the end of the financial year, which is then cancelled out in the balance sheet by its current and long term liabilities as follows:

Interest Suspense Acc. £630 Current Asset
Short term Interest payable - not more than 12 months £210 Current Liability
Long Term Interest payable - more than 12 months £420 Long Term Liability


The reason for this self - cancelling approach is to disclose current and long term fixed interest liabilities in the balance sheet, while maintaining the rule that interest is only charged as and when it arises.

Exceptions to Interest Suspense

Disclosing interest in the balance sheet in this way only applies to liabilities for fixed term loans where the values of interest payable are also fixed, making them known quantities.

Estimates for future interest payable on the likes of bank overdrafts or factoring / invoicing debt, with values that will fluctuate and interest rates that may vary over time, are not required to be disclosed in the balance sheet.

Figurewizard calculates and applies the interest suspense account to your balance sheet forecasts automatically.

No input is required from you other than the budgeted cost of assets; their percentage to be financed; for how many months and the agreed rate of interest. The same goes for fixed term loans to the business, for example from a bank or director.

FAQs
Business Planning Cash Flow Calculator Short Term Liquidity Business Liquidity Corporation Tax is not Calculated on Net Profit Small Business Corporation Tax Cash Flow Calculator Using Figurewizard - VAT Using Figurewizard - Sales by Month Using Figurewizard - HP or Instalment Plan Budgets Using Figurewizard - How the budgeted cash flow forecast is calculated Using Figurewizard - Fixed Asset Budgets Using Figurewizard - Calculate Purchase of Goods Using Figurewizard - Forecasting Payments to Suppliers Using Figurewizard - How to Forecast Cash Collection Solvency and the Balance Sheet Property in the Balance Sheet Why Equity is a Liability Asset Management and Liquidity Selling Fixed Assets Contracts: Invitation to Treat What is Deferred Income Loss on the Sale of Fixed Assets Calculating Gross Profit Margin Profit and Loss Statement What is Operating Profit What is Net Operating Revenue What is Equity Profit on the Sale of Fixed Assets How Taxable Profit is Calculated What are Operating Overheads Overheads - Provisions Depreciation What is Business Operating Activity What are Fixed Assets Liquidity and Cash Flow Balance Sheet Liabilities and Leases Stock or Inventory Control What is Distressed Stock or Inventory What is Interest Suspense Account Product Safety Laws What is a Bill of Exchange What is Payment at Sight What is a Bill of Lading What is a packing note What is Demurrage Cash Flow Forecasts and Planning Factoring: Invoice Discounting and Cash Flow How Does VAT Work