Unearned Discount

AAA

DEFINITION of 'Unearned Discount'

Interest that has been collected on a loan by a lending institution but has not yet been counted as income (or earnings). Instead, it is initially recorded as a liability. If the loan is paid off early, the unearned interest portion must be returned to the borrower.


Also called unearned interest.

INVESTOPEDIA EXPLAINS 'Unearned Discount'

An unearned discount account recognizes interest deductions before being classified as income earned throughout the term of the outstanding debt. Over time, then, the unearned discount creates an increase in the lender's profit and a subsequent decrease in liability.

RELATED TERMS
  1. Income

    Money that an individual or business receives in exchange for ...
  2. Financial Statements

    Records that outline the financial activities of a business, ...
  3. Interest

    1. The charge for the privilege of borrowing money, typically ...
  4. Liability

    A company's legal debts or obligations that arise during the ...
  5. Surplus

    The amount of an asset or resource that exceeds the portion that ...
  6. Capital Loss Coverage Ratio

    The difference between an asset’s book value and the amount received ...
Related Articles
  1. Adjustable-Rate Mortgage Indexes: Know ...
    Home & Auto

    Adjustable-Rate Mortgage Indexes: Know ...

  2. The Best Way To Borrow
    Retirement

    The Best Way To Borrow

  3. Securities Lending: Cause Of The Next ...
    Mutual Funds & ETFs

    Securities Lending: Cause Of The Next ...

  4. Lending Clubs: Better Than Banks?
    Options & Futures

    Lending Clubs: Better Than Banks?

comments powered by Disqus
Hot Definitions
  1. Correlation

    In the world of finance, a statistical measure of how two securities move in relation to each other. Correlations are used ...
  2. Letter Of Credit

    A letter from a bank guaranteeing that a buyer's payment to a seller will be received on time and for the correct amount. ...
  3. Due Diligence - DD

    1. An investigation or audit of a potential investment. Due diligence serves to confirm all material facts in regards to ...
  4. Certificate Of Deposit - CD

    A savings certificate entitling the bearer to receive interest. A CD bears a maturity date, a specified fixed interest rate ...
  5. Days Sales Of Inventory - DSI

    A financial measure of a company's performance that gives investors an idea of how long it takes a company to turn its inventory ...
  6. Accounts Payable - AP

    An accounting entry that represents an entity's obligation to pay off a short-term debt to its creditors. The accounts payable ...
Trading Center