when amortizing unearned interest a portion of the income is allocated to one period at a time to amortize prepaid interest the unearned interest income account is debited and the interest income account is credited 
calculating unearned interestunearned interest can be estimated using a method known as the rule of 78 the rule of 78 deals with precomputed loans that is loans which have their finance charges calculated before the loan is made the rule of 78 is used to calculate the amount of the finance charge or interest to be rebated in the event that the loan is repaid early the formula for unearned interest is unearned interest f x k k 1 n n 1 