Accounting Dictionary

Sinking Fund

An investment earmarked for paying off long-term debt.

ABC Company is going to have to repay $1,000,000 in debt in 20 years. Every year for the next 20 years they will put $50,000 in a bank account so that when the loan comes due they will have the $1,000,000 to pay it back. This bank account is called a sinking fund.

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