Deferred Credit


DEFINITION of 'Deferred Credit'

Income that is received by a business but not immediately reported as income. Typically, this is done on income that is not fully earned and, consequently, has yet to be matched with a related expense. Such items include consulting fees, subscription fees and any other revenue stream that is intricately tied to future promises. For example, a book club might defer income from a two-year membership plan until all the costs of procurement and shipping are assessed. Also known as deferred revenue or deferred income.

BREAKING DOWN 'Deferred Credit'

Deferred credit is used largely for bookkeeping purposes and as a means to even out, or "smooth" financial records and give a more accurate picture of business activities. Using the previous example of a book club, if all membership or subscriptions fees just happened to come in during the first quarter and all products were shipped out in the second, the quarter-to-quarter income statement would obviously be skewed.

  1. Revenue

    The amount of money that a company actually receives during a ...
  2. Income

    Money that an individual or business receives in exchange for ...
  3. Deferred Revenue

    Advance payments or unearned revenue, recorded on the recipient's ...
  4. Deferred Compensation

    An amount of earned income that is payable at a later date. Most ...
  5. Accounts Receivable - AR

    Money owed by customers (individuals or corporations) to another ...
  6. Encumbrance

    A claim against a property by a party that is not the owner. ...
Related Articles
  1. Retirement

    The Essentials Of Corporate Cash Flow

    Tune out the accounting noise and see whether a company is generating the stuff it needs to sustain itself.
  2. Professionals

    Career Advice: Accountant Vs. Financial Planner

    Identify the key differences between a career in accounting and financial planning, and learn how your personality dictates which is the better choice for you.
  3. Economics

    Calculating Days Working Capital

    A company’s days working capital ratio shows how many days it takes to convert working capital into revenue.
  4. Professionals

    Career Advice: Accountant Vs. Controller

    Learn about the differences between controllers and accountants, how the two are related and which is the best career choice for aspiring bookkeepers.
  5. Professionals

    What is Cash Basis Accounting?

    Cash basis accounting recognizes revenues and expenses at the time cash is paid or received.
  6. Term

    What Is Financial Performance?

    Financial performance measures a firm’s ability to generate profits through the use of its assets.
  7. Entrepreneurship

    What's a Good Profit Margin for a Mature Business?

    How to determine if the amount you clear dovetails with the competition.
  8. Economics

    5 Ways to Create Residual Income

    Here are 5 ways through which you can create residual streams of income.
  9. Economics

    Understanding Explicit Costs

    Common examples of explicit costs include wages, utilities, rent, raw materials, and other direct expenses companies pay to conduct business.
  10. Investing

    Did the Fed Miss its Window to Raise Rates?

    The debate in the media over whether the Federal Reserve will announce liftoff this month or in December continues to rage on.
  1. Does working capital include salaries?

    A company accrues unpaid salaries on its balance sheet as part of accounts payable, which is a current liability account, ... Read Full Answer >>
  2. What is a profit and loss (P&L) statement and why do companies publish them?

    A profit and loss (P&L) statement, or balance sheet, is essentially a snapshot of a company's financial activity for ... Read Full Answer >>
  3. How do dividends affect the balance sheet?

    Dividends paid in cash affect a company's balance sheet by decreasing the company's cash account on the asset side and decreasing ... Read Full Answer >>
  4. Who actually declares a dividend?

    It is a company's board of directors who actually declares a dividend. The declaration date is the first of four important ... Read Full Answer >>
  5. Are dividends considered an expense?

    Cash or stock dividends distributed to shareholders are not considered an expense on a company's income statement. Stock ... Read Full Answer >>
  6. Do dividends go on the balance sheet?

    The only account recorded on the balance sheet, when dividends are declared and before they are paid out to a company's shareholders, ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Zero-Sum Game

    A situation in which one person’s gain is equivalent to another’s loss, so that the net change in wealth or benefit is zero. ...
  2. Capitalization Rate

    The rate of return on a real estate investment property based on the income that the property is expected to generate.
  3. Gross Profit

    A company's total revenue (equivalent to total sales) minus the cost of goods sold. Gross profit is the profit a company ...
  4. Revenue

    The amount of money that a company actually receives during a specific period, including discounts and deductions for returned ...
  5. Normal Profit

    An economic condition occurring when the difference between a firm’s total revenue and total cost is equal to zero.
  6. Operating Cost

    Expenses associated with the maintenance and administration of a business on a day-to-day basis.
Trading Center
You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!