Interest expense.

Interest expense is the cost of borrowing money from a lender, typically in the form of a loan or a line of credit. It is the amount of money that a company or individual pays in interest on their outstanding debt. Interest expense is recorded on the income statement as a non-operating expense and is deducted from the company's revenue to calculate its net income. It is an important financial metric that reflects the cost of financing and can impact a company's profitability and cash flow.

Definition: Interest expense is the cost of borrowing money. It is calculated by multiplying the principal amount borrowed by the interest rate. Interest expense is typically recorded on the income statement as a non-operating expense.

Formula:

```
Interest Expense = Principal Amount x Interest Rate
```

Example:

A company borrows $100,000 at an interest rate of 5%. The interest expense for the year would be:

```
Interest Expense = $100,000 x 0.05 = $5,000
```

Factors Affecting Interest Expense:

- Principal Amount: The higher the principal amount borrowed, the higher the interest expense will be.
- Interest Rate: The higher the interest rate, the higher the interest expense will be.
- Term of Loan: The longer the term of the loan, the higher the total interest expense will be.

Impact on Financial Statements:

Interest expense can have a significant impact on a company's financial statements. It can reduce net income and earnings per share. It can also increase a company's debt-to-equity ratio, which can make it more difficult to obtain additional financing.

Management of Interest Expense:

There are a number of ways that companies can manage their interest expense. These include:

- Negotiating favorable interest rates: Companies can negotiate with lenders to obtain lower interest rates.
- Extending the term of the loan: Extending the term of the loan can reduce the monthly interest payments, but it will also increase the total interest expense over the life of the loan.
- Refinancing existing debt: Companies can refinance existing debt with lower interest rates.
- Reducing principal balances: Companies can reduce their principal balances by making extra payments on their loans.

Disclosure Requirements:

Companies are required to disclose their interest expense in their financial statements. This disclosure must include the following information:

- The total amount of interest expense incurred during the period
- The average interest rate on the company's debt
- The maturity dates of the company's debt obligations