Dictionary / Bond Discount
What does Bond Discount mean in accounting?
Quick definition
GeneralThe excess of par or face value of a bond over the amount paid. This term guides how bookkeepers record, classify, and explain related transactions in routine financial reporting.
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Examples
A municipal bond bought under face
You run a cabinet shop. On April 9 you park surplus cash by buying $15,000 face of County of Lane 4% bonds from a brokerage for $14,250. The $750 gap is the bond discount: face exceeds what you paid. In QuickBooks Online or Xero, record the investment at $14,250, not $15,000, and put the face in the memo. Write that $750 into interest income over the remaining life so the carrying amount moves toward face. Do not expense the $750 on April 9 as a broker fee.
Interest withheld on a loan is not this
On November 3 your coffee roaster signs a 90-day promissory note with a credit union for $6,000 to buy green beans. The credit union withholds $90 of interest and deposits $5,910. That withheld $90 is a bank discount, not a bond discount. Nobody sold you a bond under par value. In QuickBooks Online or Xero, raise cash $5,910, record notes payable at $6,000, and put the $90 with interest. Do not open a bond-discount account.
Why it matters
Bond discount is the gap between a bond's printed par value or face and the lower cash you paid for it. You will not post this most months; it shows up only when you buy a bond under face, then at later closes as you move that gap into interest income over the remaining life. Record the holding at face and the bank withdrawal will not match; leave it at cost with no write-up and later periods understate the extra yield you already locked in. A bank discount is interest a lender withholds from a loan, and a vendor cash discount is a price cut for paying a bill early, so neither is the spread on a bond bought under par.
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What is Bond Discount in bookkeeping?
The excess of par or face value of a bond over the amount paid.
When should I use Bond Discount?
Use Bond Discount when the transaction facts match its definition and you need the ledger and financial statements to reflect the correct account and period.
What is a common mistake with Bond Discount?
Bond Discount is used for bond discount entries, while Bad Debt covers a related but distinct bookkeeping purpose. Review both terms before posting unusual transactions. A common mistake is applying it by label only instead of checking the underlying transaction details.