Unearned Discount

Finance charges received when a loan is made and recognized as income at a later date. Finance charges in discount notes are deducted from the loan proceeds, or the amount actually loaned to the borrower. In accounting terms, an unearned discount is a liability on the books of the lender until the loan matures. Under Accrual Basis accounting, deferred interest is unrealized income, and is deducted from gross loans carried on a bank's books so it does not overstate earnings.