What is amortizing unearned interest?

You may know that unearned interest refers to a collected interest on a loan but has not yet been considered as income by a lending organization. In this case, they use an accounting method called amortization of unearned interest to cope with long-term, fixed-income securities. In this method, the unearned interest is initially recorded as a liability before the loan life passes, and the interest is earned and recorded as income in the lending institution's books.