The Discount on Bonds Payable account is a contra account because it is a liability account with a debit amount.
What type of account is discount on bonds payable?
Discount on Bonds Payable is a contra liability account with a debit balance, which is contrary to the normal credit balance of its parent Bonds Payable liability account.
Is the discount on bonds payable a contra liability?
This happens when investors need to earn a higher effective interest rate than the stated interest rate associated with a bond. The amount of this discount is stored in a contra liability account, which is paired with and offsets the bonds payable account.
Is discounts a contra account?
Accounting for a Sales Discount
The sales discount account is a contra revenue account, which means that it reduces total revenues.
Why bond discount is a liability?
If a bond is sold at a discount, for instance, at 90 cents on the dollar, the issuer must still repay the full 100 cents of face value at par. Since this interest amount has not yet been paid to bondholders, it is a liability for the issuer.
How should discount on bonds payable be reported?
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.
What type of account is discounts?
Definition of Sales Discounts
Sales discounts are recorded in a contra revenue account such as Sales Discounts. Hence, its debit balance will be one of the deductions from sales (gross sales) in order to report the amount of net sales.
What type of account is discounts given?
Accounting for the Discount Allowed and Discount Received
When the seller allows a discount, this is recorded as a reduction of revenues, and is typically a debit to a contra revenue account.
Which accounts are contra accounts?
There are four key types of contra accounts—contra asset, contra liability, contra equity, and contra revenue. Contra asset accounts include allowance for doubtful accounts and accumulated depreciation. Contra asset accounts are recorded with a credit balance that decreases the balance of an asset.
Is bonds payable a liability?
Bonds payable is a liability account that contains the amount owed to bond holders by the issuer. This account typically appears within the long-term liabilities section of the balance sheet, since bonds typically mature in more than one year.