What is the Retirement of Bonds?

The retirement of bonds refers to the repurchase of bonds from investors that had been previously issued. The issuer retires bonds at the scheduled maturity date of the instruments. Or, if the bonds are callable, the issuer has the option to repurchase the bonds earlier; this is another form of retirement. Once bonds are retired, the issuer eliminates the bonds payable liability on its books.

Depending on the funding situation of the issuer, it may be necessary to issue new bonds in order to obtain the cash needed to retire the old bonds. In this situation, the issuer’s total liabilities will be approximately the same before and after the bond retirement.

Accounting for a Bond Retirement

When it is time to redeem the bonds, all premiums and discounts should have been amortized, so the entry is simply a debit to the bonds payable account and a credit to the cash account – for which a sample entry appears next.