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Simple English definitions for legal terms
deferred credit
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A quick definition of deferred credit:
Deferred credit refers to a type of credit that is not immediately recognized as income or revenue. Instead, it is spread out over a period of time, usually in later accounting periods. This can include things like premiums on bonds or other financial instruments. Essentially, it means that the money owed is not paid all at once, but rather in installments over time.
A more thorough explanation:
Definition: Deferred credit refers to a credit that is not immediately recognized as income or revenue, but is spread over later accounting periods. This means that the credit is earned now, but the payment or recognition of the credit is delayed until a later time.
Example: A common example of deferred credit is a premium on an issued bond. When a company issues a bond, it may receive a premium payment from the bond purchaser. However, this premium is not recognized as income immediately, but is spread over the life of the bond. For example, if a company issues a 10-year bond with a $1,000 premium payment, it would recognize $100 of income each year for the next 10 years.
Another example: A company may also receive payment for goods or services that will be delivered or performed in the future. This payment is considered a deferred credit because the company has not yet earned the revenue, but will do so in the future when the goods or services are delivered or performed.
These examples illustrate how deferred credit works. It is important for companies to properly account for deferred credits in order to accurately reflect their financial position and performance.