Discount (bond)
Financial Accounting glossary · Liabilities & Bonds Payable
Definition
Shortfall of a bond's issuance price below its face value, arising when the coupon rate is below the market yield at issuance. Amortized over the bond's life using the effective interest method, increasing reported interest expense each period.
Discount (bond) in plain English
A bond is basically an IOU: a company borrows money and promises to pay it back later, plus regular interest payments called the "coupon." A discount happens when the bond's fixed coupon rate is stingier than what investors can earn elsewhere (the "market yield"), so nobody will pay full price — they'll only buy it for LESS than its face value. Say a bond promises to repay $1,000 but pays weak interest, so buyers only fork over $950 today; that $50 gap is the discount. Over the bond's life, accounting gradually adds that $50 back into interest expense, because the borrower is really paying extra for having gotten the cheaper price up front.
Also called: bond
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