Deferred profit
The profit on a deferred-payment sale that is recognised over the payment period rather than all at once at the sale date.
Deferred profit is the portion of the mark-up in a murabaha or other deferred payment sale that has not yet been recognised as income. Rather than booking the whole profit at the sale date, institutions generally recognise it over the period of the deferred payments, and the unrecognised amount is shown against the receivable. AAOIFI's accounting standard on murabaha and other deferred payment sales sets out the requirements for institutions that apply it.
Sources
This entry explains a term; it is not a Shariah ruling. Approving a product is for each institution's own Shariah board and regulator.
Related terms
MurabahaA sale at cost plus an agreed, disclosed profit; the seller must own the asset first. Payment is often deferred in instalments.Bay al-muajjal (deferred-payment sale)A sale in which the goods are delivered now and the price is paid later, in one sum or in instalments.AAOIFI Financial Accounting Standards (FAS)The accounting standards AAOIFI issues for Islamic financial institutions, covering contract types and Islamic-specific reporting.Impairment and credit lossesRecognising losses when financing assets lose value or become doubtful; AAOIFI's standard uses an expected credit loss approach.