effective interest rate method of amortization
The preferred method for systematically moving bond discount or premium from the balance sheet over to interest expense on the income statement over the life of the bond. This method is superior to the straight-line method of amortization, because it causes interest expense to be in tandem with the book value of the bonds. In other words, under this method bond interest expense on the income statement will decrease when the book value of the bonds decreases on the balance sheet. Bond interest expense will increase as the book value of the bonds increases. To learn more, see Explanation of Bonds Payable.