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. Surplus

    The amount of an asset or resource that exceeds the portion that ...
  4. Interest

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

    A company's legal debts or obligations that arise during the ...
  6. Bond

    A debt investment in which an investor loans money to an entity ...
Related Articles
  1. Home & Auto

    Adjustable-Rate Mortgage Indexes: Know Your Benchmark

    Understanding these benchmarks can help you select the most competitive adjustable-rate loan.
  2. Retirement

    The Best Way To Borrow

    There are many avenues from which to drum up funding. Find out the pros and cons of each.
  3. Mutual Funds & ETFs

    Securities Lending: Cause Of The Next Financial Crisis?

    Securities lending can pose risks to investor's portfolios and the entire financial system.
  4. Options & Futures

    Lending Clubs: Better Than Banks?

    If you need to borrow money and your credit is making it tough, this new option may be just what you're looking for.
  5. Home & Auto

    Lending From A Loan Officer's Perspective

    Learn how a loan officer thinks, so that you can get the best and safest loan.
  6. Economics

    Understanding Perpetuity

    Perpetuity means without end. In finance, a perpetuity is a flow of money that will be received on a regular basis without a specified ending date.
  7. Bonds & Fixed Income

    Should Junk Bond ETFs Be a Part of Your Portfolio?

    Should junk bonds be a part of your portfolio? Here's what you need to know.
  8. Fundamental Analysis

    What is a Null Hypothesis?

    In statistics, a null hypothesis is assumed true until proven otherwise.
  9. Professionals

    Vanguard Readies Muni Bond ETF

    Vanguard is set to roll out a muni bond ETF, the firm's first.
  10. Mutual Funds & ETFs

    Is the TLT ETF a Good Bet for the Long Run?

    Is the iShares 20+ Year Treasury Bond ETF (TLT) a good bet for the long run?

You May Also Like

Hot Definitions
  1. Income Effect

    In the context of economic theory, the income effect is the change in an individual's or economy's income and how that change ...
  2. Price-To-Sales Ratio - PSR

    A valuation ratio that compares a company’s stock price to its revenues. The price-to-sales ratio is an indicator of the ...
  3. Hurdle Rate

    The minimum rate of return on a project or investment required by a manager or investor. In order to compensate for risk, ...
  4. Market Value

    The price an asset would fetch in the marketplace. Market value is also commonly used to refer to the market capitalization ...
  5. Preference Shares

    Company stock with dividends that are paid to shareholders before common stock dividends are paid out. In the event of a ...
  6. Accrued Interest

    1. A term used to describe an accrual accounting method when interest that is either payable or receivable has been recognized, ...
Trading Center