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.
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.