A discount says the bond proceeds were below contractual principal. It does not mean the issuer lost cash on day one. The net carrying amount begins below face and increases as effective interest exceeds coupon cash.
Keep unamortized discount visible in the rollforward because it affects net carrying amount, interest expense, and any later extinguishment calculation.
Measure the opening difference
ASC 835-30-25-9 identifies the difference between face amount and present value at issuance as discount or premium. A discount exists when present value is below face.
For example, a $1,000,000 face bond priced at $940,000 has a $60,000 discount before any separate issuance cost. The liability begins at the supported net carrying amount. Under the interest method, expense exceeds coupon cash and the carrying amount rises toward face. ASC 835-30-45-1A treats the discount as part of the note's presentation, not a separate asset.
Do not net an unamortized discount against accrued coupon interest. They answer different questions and follow different dates in the closing schedule.
Put the concept to work
Apply this concept
- Reconcile a bond discount from issue price to face amount through effective-interest amortization without treating it as a separate cash account.
Learning resources
Choose a lesson, try an application, or inspect the sources behind this concept.
Build on these ideas
- Bond issue price — Apply
To apply this concept: Required. Discount is defined only after issue price and face amount are known.