Bonds payable are debt obligations a company owes to its creditors. A company can raise money in one of two ways: It can issue shares of the company as equity and allow investors to purchase ownership rights in the company; or it can issue bonds at a fixed interest rate, which serves as debt obligations. On a balance sheet, bonds payable represent the interest and principal owed to bond holders.
Debit bonds payable, and credit cash in the general ledger. The general ledger is the primary accounting document for most businesses. It includes a recording of all costs and revenues. For example, if your company is repaying $10,000 in principal payments, place $10,000 in the left-hand debit column. On the right hand side of the ledger corresponding to this debit, credit cash $10,000. Remember that your ledger must always balance. If you are paying out $10,000 to bondholders, you have $10,000 less in cash. Conversely, if you are issuing bonds worth $10,000, you would credit bonds payable and debit cash.
Record your interest expenses in the general ledger in the same way you recorded the bonds payable expenses. For example, if you have $50,000 of bonds outstanding with an interest rate of 10 percent, you would have a $5,000 interest obligation. In the general ledger, debit $5,000 for interest expense. Credit $5,000 for cash.
Record on the balance sheet the bonds payable expense from Step 1 in the "long-term liabilities" section of the balance sheet, under the "bonds payable" section. The bonds payable section represents all long-term bond obligations that won't be repaid until after the current fiscal year. For example, if you previously had $100,000 in bonds payable and repaid $10,000 in bonds but issued $5,000 in bonds, your total long-term liabilities have decreased by $5,000. Therefore, you would reduce the bonds payable section to $95,000.
Record on the balance sheet the interest expense from Step 2 in the "current liabilities section," under "interest." The interest section under current liabilities represents all interest payments due before the end of the current fiscal year. In this example, there was interest due of $5,000, so you would list that number under current liabilities.
- Comstock Images/Comstock/Getty Images