When bonds are issued by a company, the accounting entry shows an

Question

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When a company issues bonds, it is essentially borrowing money from investors who purchase the bonds. The company receives cash (an asset) in exchange for a promise to pay back the borrowed amount (the principal) plus interest over time. The accounting entry to reflect this transaction would include:
- An increase in assets (specifically, cash or cash equivalents) because the company now has more money in its possession due to the bond issuance.
- An increase in liabilities (specifically, a long-term liability account such as "Bonds Payable") because the company has a new obligation to repay the bondholders in the future.
The entry does not directly affect stockholders' equity at the time of the bond issuance. Stockholders' equity would only be affected by transactions that change the ownership interest, such as issuing new shares or paying dividends, not by borrowing activities.

When Bonds Are Issued by a Company, the Accounting Entry