Time deposit
In one sentenceAn amount locked at the bank for a set period in return for an agreed return. It cannot be recovered before the end of the period except under conditions that usually affect the return.
Simply put
When the business has surplus cash it will not need for months, it puts it in a time deposit instead of leaving it in the current account with no return. Banks offer Sharia-compliant forms such as Murabaha.
If its term is three months or less, it is usually shown within cash and cash equivalents; if longer, it appears as a short-term investment.
Worked example
A factory has a surplus of 500,000 SAR it will not need for six months, so it puts it in a time deposit at an assumed annual return of 4% for illustration.
Deposit amount500,000 SAR
Assumed annual return4%
Term6 months = 6 ÷ 12 of a year
Return500,000 × 4% × 6 ÷ 12 = 10,000 SAR
Return at the end of the term10,000 SAR
Formula: Return = amount × annual rate × (number of months ÷ 12)
Don't confuse it with
Current accountA current account is available for withdrawal at any time with no return, while a deposit is tied to a term in return for a return.