The costs associated with issuing bonds should be recorded as a deferred charge in the long term asset section of the balance sheet under the heading of Other Assets. The account title could be Bond Issue Costs. Over the life of the bonds you will need to systematically move the bond issue cost from the balance sheet to the income statement. Accountants refer to this as amortizing the costs.

Let’s illustrate the amortization of bond issue costs by assuming the total of the bond issue costs were $24,000 and the bonds will mature in 10 years. Each month you would debit Bond Issue Cost Expense for $200 ($24,000 divided by 120 months) and would credit Bond Issue Cost for $200. The concept is to match the $24,000 cost to the accounting periods that are benefiting from the bonds having been issued.

Our discussion pertains to financial statement reporting and we are not familiar with income tax reporting. You should discuss the income tax treatment with your tax adviser.

Learn more about Accounting Principles.

About the Author: Harold Averkamp (CPA) has worked as an accountant, consultant, and university accounting instructor for more than 25 years. He is the creator and author of all the content found on AccountingCoach.com. You can read 1,500 testimonials praising his ability to explain accounting in a way that anybody can understand.

Learn more about AccountingCoach Pro