How do you account for bond issue costs?

Definition of Bond Issue Costs

The costs associated with issuing bonds are debited to a contra liability account such as Bond Issue Costs. Over the life of the bonds, the issue costs must be systematically moved from the balance sheet to the income statement. (Accountants refer to this as amortizing the costs.)

Example of Bond Issue Costs

Assume that a corporation incurs $24,000 of bond issue costs (legal and accounting fees) to register its recently issued bonds that will mature in 10 years. The corporation records these fees by debiting Bond Issue Costs for $24,000 and crediting Cash for $24,000.

Using straight-line amortization, each month the corporation will debit Interest Expense for $200 ($24,000 divided by 120 months) and credit Bond Issue Costs for $200. The purpose is to match the $24,000 of bond issue costs to the 120 monthly accounting periods that are benefiting from the bonds having been issued.