Definition:
Bonds payable is a liability account used to record the amount of bonds issued by a company. It represents the company’s obligation to repay the principal amount of the bonds at maturity and to pay interest on the bonds.
Key points about bonds payable:
- Liability: Bonds payable is a liability on the balance sheet.
- Face value: The face value of the bonds is the amount that will be repaid at maturity.
- Interest expense: The company must record interest expense on the income statement to account for the interest payments on the bonds.
- Discount or premium: If a bond is issued at a discount or a premium, the discount or premium is amortized over the life of the bond, affecting the interest expense.
Why is bonds payable important?
- Financial statements: Bonds payable is a significant liability that is reported on the balance sheet.
- Debt financing: Bonds payable are a source of long-term debt financing for companies.
- Interest expense: Bonds payable contribute to a company’s interest expense, which affects its profitability.
In essence, bonds payable is a liability account used to record the amount of bonds issued by a company, and it’s a significant component of a company’s financial statements.
