Accounting for debt issuance costs
/What are Debt Issuance Costs?
An organization may incur a number of costs when it issues debt to investors. For example, when bonds are issued, the issuer will incur accounting, legal, and underwriting costs to do so. in essence, any expenses that can be directly attributed to a debt issuance are classified as debt issuance costs.
Accounting for Debt Issuance Costs
Debt issuance costs are recorded as a direct deduction from the face amount of the debt liability on the balance sheet. They are amortized over the life of the debt using the effective interest method, with the amortization recognized as interest expense. If the debt is repaid early, any unamortized costs are expensed immediately.
Presentation of Debt Issuance Costs
The debt issuance costs related to a note should be reported in the balance sheet as a direct deduction from the face amount of the note. This deduction can be stated in a separate line item, or integrated into a single line item that includes the current note balance. In the latter case, it can make sense to separately disclose the remaining amount of debt issuance costs in the footnotes that accompany the financial statements, if this amount is material.