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. Policyholder Surplus

    The assets of a mutual insurance company minus its liabilities. ...
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. 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 ...
  2. Ratio Analysis

    Quantitative analysis of information contained in a company’s financial statements. Ratio analysis is based on line items ...
  3. Days Payable Outstanding - DPO

    A company's average payable period. Calculated as: ending accounts payable / (cost of sales/number of days).
  4. Net Sales

    The amount of sales generated by a company after the deduction of returns, allowances for damaged or missing goods and any ...
  5. Over The Counter

    A security traded in some context other than on a formal exchange such as the NYSE, TSX, AMEX, etc. The phrase "over-the-counter" ...
  6. Earnings Before Interest After Taxes - EBIAT

    A financial measure that is an indicator of a company's operating performance. EBIAT, which is equivalent to after-tax EBIT ...
Trading Center