Discount on notes payable

A discount on notes payable arises when the amount paid for a note by investors is less than its face value. The difference between the two values is the amount of the discount. This difference is gradually amortized over the remaining life of the note, so that the difference is eliminated as of the maturity date. The amount of this discount is especially large when the stated interest rate on a note is well below the market rate of interest.

Related Courses

Accounting for Investments 
GAAP Guidebook