Summary Accounting for Bonds Payable

Accounting for
Bonds Payable
Definition of bond

Bonds are debt instruments of the issuing corporation used by that corporation to
borrow funds from the general public or institutional investors.

Moreover, a bond is a formal unconditional promise, made under seal, to pay a
specified sum of money at a determined future date, and to make periodic interest
payment at a stated rate until the principal sum is paid.

In simple language, a bond is a contract of debt whereby one party called the issuer
borrows funds from another party called the investor.

A bond is evidenced by a certificate and the contractual agreement between the
issuer and investor is contained in another document known as “bond indenture”.




Features of bond issue

a. A bond indenture or deed trust is the document which shows in detail the terms of
the loan and the rights and duties of the borrower and other parties to the contract.

b. Bond certificates are used. Each bond certificate represents a portion of the total
loan.

c. If property is pledged as security for the loan, a trustee is named to hold the title to
the property serving as security.

d. A bank or trust entity is usually appointed as registrar or disbursing agent.