The Discount on Bonds Payable account is a contra account because it is a liability account with a debit amount.
Why is bond discount a contra liability?
Companies that issue bonds are likely to use contra liability accounts. If the bond is sold at a discount, the company will record the cash received from the bond sale as “cash”, and will offset the discount in the contra liability account.
Is bonds Payable a contra asset?
Discount on Bonds Payable is a contra account because it is a liability account with a debit amount.
What account is bond discount?
The account Discount on Bonds Payable (or Bond Discount or Unamortized Bond Discount) is a contra liability account since it will have a debit balance. Discount on Bonds Payable will always appear on the balance sheet with the account Bonds Payable.
What are considered contra assets?
A contra asset is a negative asset account that offsets the asset account with which it is paired. … The natural balance in a contra asset account is a credit balance, as opposed to the natural debit balance in all other asset accounts.
Is sales discount a contra account?
The sales discount account is a contra revenue account, which means that it reduces total revenues.
Are Contra liabilities assets?
A contra asset account is not classified as an asset, since it does not represent long-term value, nor is it classified as a liability, since it does not represent a future obligation.
How do you record discounts on bonds payable?
Accounting for Bond Amortization
If there was a discount on bonds payable, then the periodic entry is a debit to interest expense and a credit to discount on bonds payable; this has the effect of increasing the overall interest expense recorded by the issuer.
Is premium on bonds payable a liability?
Premium on bonds payable is the excess amount by which bonds are issued over their face value. This is classified as a liability on the books of the issuer, and is amortized to interest expense over the remaining life of the bonds.
Where does discount on bonds payable Go on balance sheet?
Discount on bonds payable is a contra account to bonds payable that decreases the value of the bonds and is subtracted from the bonds payable in the long‐term liability section of the balance sheet.
How should discount on bonds payable be reported on the financial statements premium on bonds payable?
Discount (premium) on bonds payable should be reported in the balance sheet as a direct deduction from (addition to) the face amount of the bond. Both are liability valuation accounts.
When a company issues a bond at a discount?
When a company issues a bond at a discount: the company’s interest expense will be more than the interest paid each year. When bonds are issued at a premium: interest expense on the bonds will be less than the interest paid.
How do you account for discount allowed?
The discount allowed is the expense of the seller. Discount Received is an income of the buyer. Discount allowed is debited in the books of the seller. Discount Received is credited in the books of the buyer.
Which is a contra account examples?
An account with a balance that is the opposite of the normal balance. … Other examples include (1) the allowance for doubtful accounts, (2) discount on bonds payable, (3) sales returns and allowances, and (4) sales discounts. The contra accounts cause a reduction in the amounts reported.
What are examples of contra revenue accounts?
A revenues account with a debit balance instead of the usual credit balance. Examples include sales returns, sales allowances, and sales discounts.