Over 2 million + professionals use CFI to learn accounting, financial analysis, modeling and more. Unlock the essentials of corporate finance with our free resources and get an exclusive sneak peek at the first module of each course.
Start Free
What are Bonds Payable?
Bonds payable are recorded when a company issues bonds to generate cash. As a bond issuer, the company is a borrower. As such, the act of issuing the bond creates a liability. Thus, bonds payable appear on the liability side of the company’s balance sheet. Generally, bonds payable fall in the non-current class of liabilities.
Bonds can be issued at a premium, at a discount, or at par. Their pricing depends on the difference between its coupon rate and the market yield on issuance. When a bond is issued, the issuer records the face value of the bond as the bonds payable. They receive cash for the fair value of the bond, and the positive (negative) difference (if any) is recorded as a premium (discount) on bonds payable.
Carrying Value of Bonds
The carrying value of a bond is not equal to the bond payable amount unless the bond was issued at par.
The carrying value is found through the following formula:
Carrying Value = Bonds Payable + Unamortized Premium/Discount
When a bond is issued at a premium, the carrying value is higher than the face value of the bond. When a bond is issued at a discount, the carrying value is less than the face value of the bond. When a bond is issued at par, the carrying value is equal to the face value of the bond.
It is also the same as the price of the bond, and the amount of cash that the issuer receives. On maturity, the book or carrying value will be equal to the face value of the bond. Both of these statements are true, regardless of whether issuance was at a premium, discount, or at par.
Amortizing Bonds Payable
If a bond is issued at a premium or at a discount, the amount will be amortized over the years through to its maturity. On issuance, a premium bond will create a “premium on bonds payable” balance. At every coupon payment, interest expense will be incurred on the bond. The actual interest paid out (also known as the coupon) will be higher than the expense.
The difference is the amortization that reduces the premium on the bonds payable account. It is also true for a discounted bond, however, in that instance, the effects are reversed.
An analyst or accountant can also create an amortization schedule for the bonds payable. This schedule will lay out the premium or discount, and show changes to it every period coupon payments are due. At the end of the schedule (in the last period), the premium or discount should equal zero. At that point, the carrying value of the bond should equal the bond’s face value.
Learn More
Thank you for reading CFI’s guide on Bond Payables. To keep advancing your career, the additional CFI resources below will be useful:
CFI is a global provider of financial modeling courses and of the FMVA Certification. CFI’s mission is to help all professionals improve their technical skills. If you are a student or looking for a career change, the CFI website has many free resources to help you jumpstart your Career in Finance. If you are seeking to improve your technical skills, check out some of our most popular courses. Below are some additional resources for you to further explore:
CFI is a global provider of financial modeling courses and of the FMVA Certification. CFI’s mission is to help all professionals improve their technical skills. If you are a student or looking for a career change, the CFI website has many free resources to help you jumpstart your Career in Finance. If you are seeking to improve your technical skills, check out some of our most popular courses. Below are some additional resources for you to further explore:
Below is a break down of subject weightings in the FMVA® financial analyst program. As you can see there is a heavy focus on financial modeling, finance, Excel, business valuation, budgeting/forecasting, PowerPoint presentations, accounting and business strategy.
A well rounded financial analyst possesses all of the above skills!
Additional Questions & Answers
CFI is the global institution behind the financial modeling and valuation analyst FMVA® Designation. CFI is on a mission to enable anyone to be a great financial analyst and have a great career path. In order to help you advance your career, CFI has compiled many resources to assist you along the path.
In order to become a great financial analyst, here are some more questions and answers for you to discover:
Take your learning and productivity to the next level with our Premium Templates.
Upgrading to a paid membership gives you access to our extensive collection of plug-and-play Templates designed to power your performance—as well as CFI's full course catalog and accredited Certification Programs.
Gain unlimited access to more than 250 productivity Templates, CFI's full course catalog and accredited Certification Programs, hundreds of resources, expert reviews and support, the chance to work with real-world finance and research tools, and more.