What type of account is "Interest Payable"?

Interest Payable is classified as a liability account. This is because it represents an obligation that a company has to pay interest to creditors or lenders for borrowed funds. When a company incurs interest on loans or bonds, the amount owed accumulates until it is paid. This creates a liability on the balance sheet, reflecting the company’s responsibility to settle this debt in the future.

Liabilities are obligations that the company must fulfill, and Interest Payable fits this definition since it will require outflow of resources (cash) at a future date when the interest is paid. Understanding the classification of accounts is crucial for accurate financial reporting, as it affects the financial position of an organization and informs stakeholders about the company's obligations.