The amount collected up front or the amount deducted from the loan proceeds is deferred and recognized in income over the life of the loan

When a loan is made and an upfront sum, like a loan origination fee, is collected or deducted from loan proceeds, the lender defers the income instead of recognizing it all up front. This is because the lender will receive revenue from the loan over its life. This revenue is recognized over the loan’s life instead of all at once because the actual value of the loan is established over time. As the loan is paid back, the lender will receive income based on the terms of the loan agreement and the expected lifetime of the loan. Deferring this initial income until it is earned allows the lender to better match revenue with costs.