What Is a Deferred Credit?

True Tamplin

Written by True Tamplin, BSc, CEPF®
Updated on August 29, 2021

Definition

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

Explanation

The category 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 under the installment method.
The preferable treatment of these items is to classify each of them as a liability or owners’ equity according to which 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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