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Bonds Payable

Moneyzine Editor
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Moneyzine Editor
1 mins
January 9th, 2024
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Bonds Payable

Definition

Issuing long-term bonds represents an important source of financing for many large companies. The accounting term bond payable is used to categorize the payments due when a company issues an indenture or enters into a contract that represents a promise to pay. Since bonds payable represent a long term obligation of the company, they are shown in the long term liabilities section of the balance sheet.

Explanation

A company can issue bonds, and therefore bonds payable, that have different rules or features. Generally, the obligation under bonds payable takes one of the following two forms:

  • Interest charges on the bond, which will be paid to the bondholder at a specified rate and frequency.

  • A fixed value to the bondholder, which represents the face value of the bond, where payment occurs on a specified maturity date.

While the liability associated with this debt appears on the balance sheet, the payment of interest due on bonds flows through the income statement as interest expense.

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