Long-term debt and leases Updated November 2026

Bond interest and amortization

Each interest date, debit Interest Expense and credit Cash for face value times the stated rate for the period. Amortizing a discount adds to interest expense (credit Discount on Bonds Payable); amortizing a premium reduces it (debit Premium on Bonds Payable). Straight-line spreads the amount evenly; effective interest uses carrying amount times the market rate.

Syntax

Discount: Dr Interest Expense (cash + amortization) / Cr Cash, Cr Discount on Bonds Payable; Premium: Dr Interest Expense (cash - amortization), Dr Premium on Bonds Payable / Cr Cash

Part	What it is
`Cash interest`	Face value x stated rate x fraction of year (for example 100,000 x 6% x 6/12 = 3,000 semiannually).
`Straight-line amortization`	Total discount or premium divided by the number of interest periods.
`Effective-interest method`	Interest expense = carrying amount at the start of the period x market rate per period; amortization is the difference from cash interest. Required under GAAP unless straight-line is not materially different.
`Interest Payable`	Accrued when an interest date falls after the balance sheet date.

Examples

Dr Interest Expense 3,300 / Cr Cash 3,000, Cr Discount on Bonds Payable 300

Result: Carrying amount rises from 97,000 to 97,300

Straight-line: 100,000 of 6% 5-year bonds (10 semiannual periods) issued at 97; discount 3,000 / 10 = 300 per period; cash 3,000.

Dr Interest Expense 2,700, Dr Premium on Bonds Payable 300 / Cr Cash 3,000

Result: Carrying amount falls from 103,000 to 102,700

Straight-line: same bonds issued at 103; premium 3,000 / 10 = 300 per period.

Dr Interest Expense 3,675, Dr Premium on Bonds Payable 325 / Cr Cash 4,000

Result: Carrying amount falls from 105,000 to 104,675

Effective interest: 100,000 of 8% bonds, semiannual cash interest 4,000, carrying amount 105,000, market rate 7%: 105,000 x 3.5% = 3,675 expense.

Common mistakes

Recording interest expense equal to the cash paid on discount or premium bonds: the amortization must be included, or expense is misstated every period.
Amortizing the premium in the wrong direction: premium amortization reduces interest expense; discount amortization increases it.
Using face value instead of carrying amount under the effective-interest method: expense is carrying amount times the market rate, which changes every period.

Practice Bond interest and amortization

These drills check your answer on live data, free, no account needed.

Interest with straight-line discountOn January 1, Kestrel Logistics issued $600,000 of 10-year, 8% bonds at 98. Interest is paid semiannually on June 30 and December 31, and the discount is amortized by the straight-line method. Record the first interest payment on June 30.
Interest with effective-interest premiumOn January 1, Halcyon Software issued $500,000 of 5-year, 8% bonds when the market rate was 6%. Interest is paid semiannually, and the bonds were issued at a carrying value of $542,651.01. Using the effective-interest method, record the first interest payment on June 30.
Retiring bonds at maturityGranite Ridge Utilities' $250,000 of bonds reach maturity today. Any premium or discount has been fully amortized and the final interest payment has already been recorded. Record the repayment of the bonds.

Questions

How do you amortize a bond discount?

Straight-line: divide the discount by the number of interest periods and credit that amount to Discount on Bonds Payable each period. Effective-interest: expense equals carrying amount times market rate; the excess over cash interest is the amortization.

Does amortizing a bond premium increase or decrease interest expense?

It decreases interest expense, because the premium received at issue offsets part of the interest cost over the bond's life.

Bonds issued at par, discount or premiumHow to record a bond issue: Dr Cash, Cr Bonds Payable at face, with Discount on Bonds Payable (debit) or Premium on Bonds Payable (credit) for the difference.
Accrued interestHow to accrue interest on a note at period end: Dr Interest Expense, Cr Interest Payable (borrower) or Dr Interest Receivable, Cr Interest Revenue (lender).
Notes payableHow to record a promissory note: Dr Cash, Cr Notes Payable when borrowing; Dr Interest Expense, Cr Interest Payable at period end; repayment at maturity.
Finance leaseHow a lessee records a finance lease: Dr Right-of-Use Asset, Cr Lease Liability at the present value of payments; payments split into interest and principal.