What is the accounting treatment for interest paid on bonds held to maturity?

Interest paid on bonds held to maturity is recorded as income. This reflects the economic benefit that the bondholder receives from holding the bond, as the interest represents a return on their investment. When a company or individual owns bonds that pay interest, they recognize that interest as revenue in their financial statements, usually under the income section. This treatment is consistent with the accrual basis of accounting, where income is recognized when it is earned, regardless of when the cash is actually received.

By recording interest as income, entities can accurately reflect their financial performance during the period in which the interest is earned. This is essential for providing a clear picture of the entity's financial health and for making informed decisions. In contrast, treating it as an asset or an expense would not accurately represent the nature of the transaction. Treating it as merely ignored until maturity would fail to recognize the revenue generation that occurs at regular intervals during the life of the bond.