When issuance or reporting falls between interest dates, build a day or period bridge. Identify the party that earned each slice and the next contractual cash payment. A quoted cash amount that includes accrued interest must be separated before the carrying schedule is evaluated.
Accrued interest is not a discount-amortization shortcut. The payable clears when coupon cash is paid; the debt basis follows its own effective-interest rollforward.
Keep the cutoff separate
ASC 835-30-35-3 distinguishes periodic effective interest from nominal cash interest. At a reporting date between coupon dates, first accrue the time-based interest for the elapsed period. Then record discount, premium, or issuance-cost amortization under the effective-interest schedule.
Suppose a $1,000,000 bond pays a 6 percent annual coupon each June 30 and December 31. A March 31 report includes three months of the next $30,000 coupon, or $15,000 under the supplied time convention. The related basis amortization is a separate amount. This page does not decide day-count terms or purchaser-seller allocation at issuance.
Put the concept to work
Apply this concept
- Compute supplied elapsed-period interest and keep payable, cash settlement, and debt-basis amortization in distinct columns.
Learning resources
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Build on these ideas
- Accrued expense — Apply
To apply this concept: Required. Interest incurred before payment is an accrual with its own cutoff.