Booking bonds movements
Bond transactions are recorded using the same general transaction structure as other investments, but bonds introduce specific concepts such as nominal value, accrued interest, coupon interest, and withholding tax.
For bonds, the Quantity represents the nominal value of the bond rather than the number of securities held. The Unit Price represents the bond price applied to the nominal value.
Purchase of Bonds
A bond purchase generally includes separate rows for the bond purchase, bank charges, accrued interest, and payment.
- Purchase of bonds
- In the Debit Account column, enter the Investment Balance Sheet Account assigned to the Item in the Items table.
- In the Quantity column, enter the nominal value of the bond purchased.
- In the Unit Price column, enter the purchase price of the bond.
- Banana Investment Accounting automatically calculates the corresponding purchase amount.
- Bank charges
- In the Debit Account column, enter the account used to record bank charges or commissions.
- Enter the amount charged by the bank.
- Accrued Interest
- When a bond is purchased between coupon payment dates, the buyer normally pays the seller the interest accrued from the previous coupon date to the purchase date.
- Record the accrued interest using the appropriate interest income account.
- In the Description column, you can indicate the accrual period and the applicable interest rate.
- Payment of Bonds
- In the Credit Account column, enter the account used to make the payment, normally the bank account.
- The total payment generally includes the bond purchase amount, accrued interest, bank charges, and any other transaction costs.
Collection of Interest Coupons
At each coupon payment date, record the interest earned on the bond. The gross interest may be divided between the net amount received and any withholding tax deducted.
- Net Interest
- In the Debit Account column, enter the bank account receiving the net interest.
- Enter the amount credited by the bank after deduction of withholding tax and any other applicable deductions.
- Recoverable Withholding Tax
- If withholding tax has been deducted and is recoverable, record the recoverable amount using the appropriate Balance Sheet account.
- In Switzerland, a 35% withholding tax may apply to certain Swiss investment income, including interest subject to Swiss withholding tax.
- Gross Interest
- In the Credit Account column, enter the appropriate interest income account.
- Record the gross amount of interest before withholding tax.
The net interest received plus the recoverable withholding tax corresponds to the gross interest, unless other deductions are present.
Sale of Bonds
A bond sale generally requires separate rows for the sale, bank charges, accrued interest, net amount received, realized gain or loss and, for foreign-currency investments, any realized exchange rate gain or loss.
- Sale of Bonds
- In the Credit Account column, enter the Investment Balance Sheet Account assigned to the Item in the Items table.
- In the Quantity column, enter the nominal value of the bond sold as a negative value.
- In the Unit Price column, enter the selling price of the bond.
- Banana Investment Accounting automatically calculates the corresponding sale amount.
- Bank Charges
- In the Debit Account column, enter the account used to record bank charges or commissions.
- Enter the amount charged by the bank.
- Accrued Interest
- When a bond is sold between coupon payment dates, the buyer normally pays the seller the interest accrued from the previous coupon date to the sale date.
- In the Credit Account column, enter the appropriate interest income account.
- Record the accrued interest received.
- Net Amount Received
- In the Debit Account column, enter the bank account receiving the proceeds.
- Enter the net amount credited by the bank.
- The net amount received generally reflects the bond sale amount plus accrued interest, less bank charges and any other deductions.
- Realized Gain or Loss on Investment
- When a bond is sold, the difference between its sale value and its book value must be recorded as a realized gain or loss.
- Use the Calculate Sale Data extension to automatically calculate the realized gain or loss based on the historical investment data.
- On the same row, the extension records the sale Quantity as a neutral number, allowing Banana Investment Accounting to calculate additional information about the realized result.
- Record a realized gain using the appropriate realized investment gain account, or a realized loss using the appropriate realized investment loss account. Use the Investment Balance Sheet Account assigned to the Item as the corresponding account.
- Realized Exchange Rate Gain or Loss (multi-currency accounting only)
- When a bond is denominated in a foreign currency, its sale may generate a realized exchange rate gain or loss in addition to the realized gain or loss on the investment.
- The realized exchange rate gain or loss reflects the effect, in the base currency, of the difference between the accounting exchange rate of the investment and the exchange rate applied to the sale.
- Use the Calculate Sale Data extension to automatically calculate the realized exchange rate gain or loss based on the historical investment data.
- Record a realized exchange rate gain using the appropriate realized exchange rate gain account, or a realized exchange rate loss using the appropriate realized exchange rate loss account. Use the Investment Balance Sheet Account assigned to the Item as the corresponding account.
Nominal Value
The nominal value, also known as the face value, is the amount on which the bond interest is calculated.
In Banana Investment Accounting, the nominal value of a bond is entered in the Quantity column.
Interest
Bond interest is generally determined by the coupon rate, expressed as a percentage of the nominal value. The bondholder receives the interest according to the coupon conditions, typically at regular intervals. Interest is calculated on the nominal value of the bond.