Bonds Issued between Interest Dates

When bonds are sold on dates between the interest payment dates, the issuing corporation collects from investors the interest that has accrued since the last interest payment date. When the next interest payment date arrives, the corporation pays the bondholders interest for the entire interest periods.

When the end of a corporation’s fiscal year does not fall on an interest payment date, the corporation must accrue bond interest expense from the last interest payment date to the end of the company’s fiscal year. This accrual results in the inclusion of the interest expense in the year incurred.