What is Deferred Credit? Definition of Deferred Credit, Deferred Credit Meaning and Concept

The credit deferred is a payment has been received in advance and which must be delivered in the future a good or service.

In other words, a deferred credit is a charge in advance to which a subsequent consideration corresponds.

The company or person records a deferred credit initially as a liability, since it represents a future obligation. Thus, once accrued, these credits go to the income statement, becoming income and, eventually, they can generate profits.

In the event that the credit is not accrued, the advance payment must be returned. It is for this reason that income should not be recognized until the respective promised good or service is accrued.

Types of deferred credit

Some types of deferred credit can be the following:

  • Deferred interest : Interest that you can collect in advance, for example, a bank or other financial institution. In other words, these interests are received before the expiration date of the period in which they were generated. In this case, the service provided is financial.
  • Deferred income : These are income received by the landlord of a property. The tenant has paid in advance the corresponding payment to be able to occupy, for example, the apartment, for a certain period of time (normally the rents are paid every month). In other words, the tenant paid perhaps the rent corresponding to the month of May on April 30.

Another meaning of deferred credit

Another meaning of deferred credit is that payment that has been received by the bank. But the operation was registered by the user or client outside of working hours. Then, it can be entered into the system at the start of the next business day.

For example, if the deposit was made late Friday night, it might be posted on Monday morning.

In this case, we are referring to credits that are not deferred due to the postponement of their respective accrual, but due to the postponement of their registration in the financial entity's accounting.