Capitalized Interest

Business, Legal & Accounting Glossary

Definition: Capitalized Interest



What is the dictionary definition of Capitalized Interest?

Dictionary Definition


The accrued interest that is added to the principal balance of a loan while you are not making payments or your payments are insufficient to cover both the principal and interest due. When this happens, you end up paying interest on interest, sometimes called “negative amortization.”


Full Definition of Capitalized Interest


Capitalized interest is the interest added to the cost of a self-constructed, long-term asset. It considers the interest on debt used to finance the asset’s construction.

The details of capitalized interest are explained in the Financial Accounting Standards Board’s (FASB) Statement of Financial Accounting Standards No. 34, Capitalization of Interest Cost. You can find this accounting pronouncement at www.FASB.org/st.

In short, there must be debt involved (cash and common stock are not considered). The interest specified by the pronouncement is added to the cost of the project, instead of being expensed on the current period’s income statement. This capitalized interest will be part of the asset’s cost reported on the balance sheet, and will be part of the asset’s depreciation expense that will be reported in future income statements.


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Definition Sources


Definitions for Capitalized Interest are sourced/syndicated and enhanced from:

  • A Dictionary of Economics (Oxford Quick Reference)
  • Oxford Dictionary Of Accounting
  • Oxford Dictionary Of Business & Management

This glossary post was last updated: 22nd April, 2020 | 1 Views.