Deferred Credit: Definition

The term deferred credit is used in accounting to identify balance sheet items that are not easily classified as either liabilities or owners ‘ equity.

Deferred Credit: Explanation

The category of deferred credit is occasionally used for accounts created by deferring income taxes and the benefits of the investment tax credit.

It also arises when employees are compensated with stock options and when sales are accounted for using the installment method.

The preferred treatment of these items is to classify each of them as a liability or owners’ equity based on the one it most closely resembles. In especially confusing situations, note disclosure should be provided to present the facts.

The term “deferred credit” should be used only if no other more descriptive title can be applied.

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