EARNING CAPACITY Definition

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EARNING CAPACITY is the net average earnings at a given moment in time: past, current or future.

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OPEN-BOOK CREDIT is a form of trade credit in which sellers ship merchandise on faith that payment will be forthcoming.

DEFERRED INCOME is that income for which the cash has been collected by the company, but have yet to be "earned". For example, a customer pays their annual software license upfront on the 1st Jan. As the company financial year-end is 31st May, the company would only be able to record five months of the income as turnover in the profit and loss account. The rest would be accrued in the balance sheet as a "deferred" creditor.

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