When those financial assets (like cash, bank accounts, accounts and notes receivable etc) are initially recognized, at every balance sheet date they need to be again measured. They need to have a true and fair value on the balance sheet and it may not be the value it was initially recognized with. This is called measuring and there are specific terms for certain types of assets.
On initial recognition, the instruments are either measured at the transaction price or at the present value of future payments discounted at the market rate of interest for a similar debt instrument. The last one applies to all instruments which are considered as financing assets, i.e. when the payment is deferred beyond normal business terms. Now, this is initial recognition, however, as said before, the instruments need to be measured at every balance sheet date.
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One side of the balance sheet is called ‘assets’ and they consist of various types of assets – there are inventories, accounts receivables, cash, fixed and immaterial assets etc. When some are physical and touchable sort of speak, then others are without any physical substance. Financial instruments considered also as financial assets are those without any physical substance obviously and are defined as contractual right for an asset. Essentially they form a part of assets.
Financial instruments on the asset side of the balance sheet are for example cash, deposits, bank accounts, commercial papers and bills, accounts and notes receivable, bonds, investments into shares etc. Those are all immaterial assets which arise more or less from contractual agreements.
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Simply put a bond is a form of financing and as such is an agreement to repay borrowed money with deemed interest (called ‘coupon’) intervals. So in essence bond could be considered also as a loan. However, note here that when loan payables are fairly easy to be recognized, bonds have a few things that need to be kept in mind. What is the price of one bond and what does it consist of? With loan payable it is far easier, so we will try to give you a few pointers just for the basics of bonds.
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