How do you record bonds that are issued?

When bonds are issued for cash, the accounting entry will include a debit to Cash for the amount of cash received, and a credit to Bonds Payable for the face or maturity amount. If the bonds are issued between interest payment dates, there will also be a credit to Bond Interest Payable or Bond Interest Expense for the amount of accrued interest received from the buyer of the bonds.

If the amount received for the bonds (excludes any accrued interest received and any bond issue costs) is more than the face amount of the bonds, there will be a credit to Premium on Bonds Payable. If the amount received for the bonds is less than the bonds’ face amount, there will be a debit to Discount on Bonds Payable. The Premium or Discount accounts are reported next to the account Bonds Payable. The amount of the Premium or Discount is then amortized to Bond Interest Expense over the life of the bonds.

Learn more about Bonds Payable.

About the Author: Harold Averkamp (CPA) has worked as an accountant, consultant, and university accounting instructor for more than 25 years.

He is the author of the 2010 Master Accounting Download Package which has been praised for it's ability to simplify accounting in a way that anybody can understand.