Interest income is earned by a creditor, investor, or lender as compensation for providing financing to a borrower or issuer and assuming the credit risk that he or she may not be repaid. Financing can take many forms, including loans, bonds, notes receivable, and depository accounts. Interest income may be in the form of interest or coupon payments made to the lender from the borrower, the difference between the amount invested (or lent) and the amount repaid at maturity, or both.
For financial institutions, interest income is one of the more important measures to users of the financial statements. It is a metric often used to measure and assess a financial institution’s financial performance, future prospects, and financial health. It is generally not, however, subject to ASC 606, Revenue from Contracts with Customers.
This chapter discusses the recognition and measurement of interest income.
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