Want to know abt deffered payment & ammortization?

Question

Want to know abt deffered payment & ammortization?

Answer 1

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Answer 2

Deferred payment definition : A debt which has been incurred and will be paid back at some point in the future. Some companies will allow you to defer payment on major purchases for a period of time. For example, you may see a company say that for major items they are offering "no money down" or "90 days good as cash" terms. This means they will let you take the item home now and pay them up to 90 days later.

In most cases no interest is charged, as long as you make all the payments on time (though this should not be assumed--ask). So why do companies do this? Basically, it is done to encourage you to buy an item that you otherwise could not afford to buy. The company is willing to "lend" you the payment money briefly in exchange for getting the sale. This is one reason why it is usually offered on more expensive items.

In accounting we use the word amortization to mean the systematic allocation of a balance sheet item to expense (or revenue) on the income statement. Conceptually, amortization is similar to depreciation and depletion. An example of amortization is the systematic allocation of the balance in the contra-liability account Discount of Bonds Payable to Interest Expense over the life of the bonds. (The accountant credits Discount on Bonds Payable and debits Bond Interest Expense with a portion of the balance each accounting period.) In the case of a premium on bonds payable, each accounting period the accountant will systematically move a portion of the balance in Premium on Bonds Payable by debiting the account and crediting Interest Expense.

Amortization also applies to asset balances, such as discount on notes receivable, deferred charges, and some intangible assets.

Amortization is a term used with mortgage loans. For example, a mortgage lender often provides the borrower with a loan amortization schedule. This schedule lists each loan payment during the life of the loan, the amount of each payment that is for interest, the amount of each payment that is for principal, and the principal balance after each loan payment. The loan amortization schedule allows the borrower to see how the loan balance will be reduced over the life of the loan