There are several business definitions for bond.
- A bond (bond payable) is a formal debt instrument issued by a corporation or government and purchased by investors. This is the meaning when we say that a public utility issued or sold bonds to help finance a new power plant. Investors talk about investing in stocks and bonds.
- A bond is also used to describe an insurance company’s guarantee of another person’s or company’s obligation. For example, an insurance company might issue a $500,000 surety bond needed by XYZ Company in order to purchase goods on credit from a certain supplier. This use of bond means that the insurance company is guaranteeing that it will pay up to $500,000 if the XYZ Company does not pay for its purchases.
- A bond can also refer to a company purchasing insurance to protect itself from dishonest acts by its employees handling money. For instance, some accounting textbooks state that a company’s employees should be bonded. (However, the cost of such protection may far exceed the expected benefits.)
