This article was co-authored by Michael R. Lewis. Michael R. Lewis is a retired corporate executive, entrepreneur, and investment advisor in Texas. He has over 40 years of experience in business and finance, including as a Vice President for Blue Cross Blue Shield of Texas. He has a BBA in Industrial Management from the University of Texas at Austin.
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Companies issue bonds in order to raise capital. However, market interest rates and other factors influence whether the bond is sold for more (at a premium) or less (at a discount) than its face value. The premium or discount is amortized, or spread out, on financial statements over the life of the bond. The carrying value of a bond is the net difference between the face value and any unamortized portion of the premium or discount. Accountants use this calculation to record on financial statements the profit or loss the company has sustained from issuing a bond at a premium or a discount.