Accrued Interest

The interest that has accumulated on a bond since the last interest payment up to, but not including, the settlement date.

There are two methods for calculating accrued interest:
1. 360-day year method, used for corporate and municipal bonds
2. 365-day year method, used for government bonds

Accrued interest is added to the contract price of a bond transaction. Essentially, accrued interest has been earned since the last coupon payment - but since the bond hasn't expired or the next payment is not yet due, the owner of the bond hasn't officially received the money. If he or she sells the bond, accrued interest is added to the sale price.