Accrued interest
In accounting accrued interests are generally computed and recorded at the end of a specific accounting period as adjusting journal entries used in accrual-based accounting. In finance, accrued interest is the interest on a bond or loan that has accumulated since the principal investment, or since the previous coupon payment if there has been one already. For a type of obligation such as a bond, interest is calculated and paid in set intervals (for instance annually or semi-annually). Ownership of bonds/loans can be transferred between different investors not just when coupons are paid, but at  any time in-between coupons. Accrued interest addresses the problem regarding the ownership of the next coupon if the bond is sold in the period between coupons: Only the current owner can receive the coupon payment, but the investor who sold the bond must be compensated for the period of time for which he or she owned the bond. In other words, the previous owner must be paid the interest that accrued before the sale. Formula. The primary formula for calculating the interest accrued in a given period is: formula_1 where formula_2 is the accrued interest, formula_3 is the fraction  of the year, formula_4 is the principal, and formula_5 is the annualized interest rate. formula_3 is calculated as follows: formula_7 where formula_8 is the number of days in the period, and formula_9 is the number of days in the year. The main variables that affect the calculation are the period between interest payments and the day count convention used to determine the fraction of year, and the date rolling convention in use. A compounding instrument adds the previously accrued interest to the principal each period, applying compound interest.