What does 'interest expense' represent?

Interest expense represents the cost incurred for borrowed funds. When a business takes out a loan or issues bonds, it is obligated to pay interest to the lenders or bondholders. This interest is an expense that reflects the cost of financing the business's operations or investments.

The interest expense is recorded on the income statement and reduces the net income of the business. It is essential for financial reporting as it provides investors and stakeholders with insight into how much the company is spending to finance its debt.

Other options do not accurately define interest expense. Revenue earned from investments focuses on income generated from assets, rather than the cost of borrowing. Profit made from selling assets pertains to gains on the sale of non-current assets rather than costs associated with borrowing. Operational costs are expenses necessary for running daily business activities but do not specifically relate to debts or borrowed funds. Therefore, the definition of interest expense is clearly associated with the cost of borrowed funds, affirming the correctness of the provided answer.