Harold Averkamp (CPA, MBA) has worked as a university accounting instructor, accountant, and consultant for more than 25 years. Search all terms that start with the letter C. Read more about the author. In accounting terms, cash is the currency and coinage owned by a company. A person would buy a bond at a premium (pay more than its maturity value) because the bond's stated interest rate (and therefore its interest payments) are greater than those expected by the current bond market. Cash Flow Statement. It is also possible that a bond investor will have no choice. – coupon payments and principal payment at maturity. n = Period which takes values from 0 to the nth period till the cash flows ending period C n = Coupon payment in the nth period; YTM = interest rate or required yield P = Par Value of the bond Examples of Bond Pricing Formula (With Excel Template) Let’s take an example to understand the calculation of Bond Pricing in a better manner. For a given period, the cash flow statement provides the following information: Sources of cash; Uses of cash Where. ... It’s not like a private short-term bond or loan where the company can default or go bankrupt. A bond payable is a promise to pay a series of payments over time and a fixed amount at maturity. Whether you are an analyst, business person or accounting student, audit the records of a corporation, a business manager, or balance your own checkbook, you will find the VentureLine accounting dictionary of accounting terms of immeasurable assistance. He is the sole author of all the materials on AccountingCoach.com. The statement of cash flows is useful in evaluating a company's ability to pay its bills. There are only two types of cash flows that can be received from investment in bonds i.e. Cash (50,000 x 10% x 6 months / 12 months) 2,500 Interest Revenue: 2,500: To record bond interest received. Cash flow financing is a form of financing in which a loan made to a company is backed by the company's expected cash flows. The nature of accrual accounting is such that a company may be profitable but nonetheless experience a shortfall in cash. Cash flow is the cash that is estimated to be received in future from investment in a bond. This includes the money in company’s bank account, petty cash drawer, and register. Investment in Bonds ($5,000 / 10 interest payments) 500 Interest Revenue: 500: To record capitalization of bond premium. Why would someone buy a bond at a premium? A bond sold at 102, a premium, would generate $1,020 cash for the issuing company (102% × $1,000) while one sold at 97, a discount, would provide $970 cash for the issuing company (97% × $1,000). My Accounting Course accounting and business dictionary explains 1,000s of accounting terms in plain english. Accounting for bonds payable requires present value computations to determine the current worth of the future payments. Companies can generate their cash reserves in a few different ways. Accounting Terms/Accounting Dictionary/Accounting Glossary Largest Online Accounting Dictionary - Over 4,200 Accounting Terms.