Are Bonds Current Assets? How They Are Treated In Balance Sheet
Bonds are the most common type of debt security issued by companies to holders and provide them with cash flow.
Are Bonds Current Assets
Generally, bonds are not considered current assets because they are held in a company for a longer period, so they are treated as non-current assets.
However, bonds are treated as current or non-current assets depending on the time and maturity. Bond that has a maturity of one or less than one year such as treasury bills are treated as short-term investments or assets in the balance sheet while most bonds are treated as long-term assets because of their holding time.
In short, most of the time bonds are treated as non-current assets in the balance sheet until they are held for a shorter period. If bonds are held for a shorter period they are recorded as short-term investments.
Bonds as an asset and a liability
When a financial institution purchases a bond, it gets interest income on that bond, here bonds are an asset whereas if a financial institution issues bonds to raise cash, it has to pay interest on it, so here bonds are considered a liability.
Why bonds are important in a company
Bond is an important element in a company’s portfolio. The following are the major reasons why bonds are essential for a company,
- It helps in raising funds when needed
- It helps in diversifying sources of fund
- It has a lower interest rate so the cost of capital is lower, etc.
FAQs
What are the criteria that determine whether a bond is a current or non-current asset?
It’s their maturity date that determines their classification.
Can bonds be classified as current assets if they are intended to be held for less than a year?
yes, they will be recorded as current assets on the balance sheet as they provide liquidity to the company in the future.
Can a bond be reclassified as a non-current asset after recording it as a current asset?
Yes, the classification of a bond can be changed under the following conditions,
- Change of intent
- Change in maturity date
- Sale restriction
What is a bond in simple words?
A bond is a kind of loan agreement that is done between the borrower (Issuer) and the lender (Holder).
Are bonds current assets or non-current assets?
Typically, bonds are classified as non-current assets in most of the cases.
How are bonds classified in the balance sheet?
Bonds are classified in the balance sheet depending on different factors such as:
- Maturity date
- Intention of holding
- Strategy of a company
- Accounting standards that a company is using, etc.
What is an example of a bond?
There are so many examples of the bond, followings are the widely used bonds are mentioned below:
- Corporate Bonds
- Government Bonds
- General Obligation Bonds, etc.
What type of asset is a bond?
Bonds are normally treated as a long-term investment in the balance sheet because they are not expected to convert into cash within a shorter period or they are held for a longer period. If you issue bonds then it will be your liability and it has no equity element involved in this case.