Interest accrued on a mortgage is classified as what type of account?

Interest accrued on a mortgage is classified as an expense because it represents the cost incurred for borrowing funds. When a mortgage is taken out, the borrower agrees to pay interest on the amount borrowed, and this interest payment reflects the use of funds over a period.

In accounting terms, expenses are costs that are incurred in the process of earning revenue. Interest indicates a utilization of financial resources that affects the profitability of the borrower. When this interest is accrued, it means that it has been incurred during the accounting period, regardless of whether it has been paid out yet. Recording this as an expense helps provide an accurate representation of the financial performance in reports such as the income statement.

Other classifications, such as liability, asset, or revenue, do not apply here. For instance, liabilities typically represent obligations that a business owes, while assets are resources owned that have future economic benefits. Revenue refers to the income earned from business operations, which is not relevant to interest payments. The classification as an expense is essential for reflecting the true financial state of the borrower’s accounting records.