Bond discount is the shorter name for discount on bonds payable, the amount by which bonds are issued below their face value. A discount arises when the contractual interest rate printed on the bond is lower than the market interest rate investors require on the issue date, so buyers pay less than face value to make up the difference. The main entry covers the journal entries and a worked example.
Two settings for the term
In the issuer's accounts, bond discount is a contra-liability balance. It is deducted from bonds payable on the balance sheet and gradually transferred to interest expense over the life of the bonds, so that by maturity the carrying amount has risen to the full face value that must be repaid. The part not yet transferred at any date is called the unamortized bond discount.
In markets, investors use "bond discount" more broadly for any bond whose current price is below its par value, whether it was issued that way or fell in price later because interest rates rose or the issuer's credit weakened. A zero-coupon bond is an extreme case: it pays no periodic interest and is always sold at a deep discount, with the whole return coming from the gap between the price paid and the face value received at maturity.