Balance Sheet treatment of Discount Bonds
Slightly confused over the balance sheet treatment of the amortization of a discount/premium for bonds. Don’t know if I’m missing something or overthinking it.
So lets take a discount bond for example. So the book value of the liability (on the balance sheet) for a discount bond will increase throughout the life of the bond (by the amount of amortization of the discount) and ultimately end up at face value at maturity right? (ie the book value of the liability will be recorded at PV on balance sheet at time of issuance and inch up towards the face value and thus converge at time of maturity)
So if the liability side of the balance sheet increases (converges to the par value) as time goes by during the life of the bond, what is the corresponding increase on the asset side? Doesn’t something need to “balance out” this increasing liability? will it be increasing cash? decreasing equity?
When you issue a bond lets say you get cash (assets) but also record an increase in long term debt/notes payables (liability). so I see that the balance sheet is balanced here, in the beginning. but what about throughout the life of the bond as the carrying value of liability increases (towards the par value)?