In accounting, what is the definition of a bond?

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Master the UCF ACG2021 Principles of Financial Accounting Final Exam. Study with comprehensive practice tests, flashcards, and multiple choice questions, each with detailed explanations. Ace your exam!

A bond is defined as an obligation to repay a stated amount at a specific maturity date. This definition emphasizes that a bond is essentially a loan made by an investor to a borrower, typically a corporation or government. When an entity issues a bond, it promises to pay back the principal amount (the face value of the bond) along with interest payments (coupons) at predetermined intervals, culminating in the repayment of the principal at the maturity date specified in the bond agreement.

This characteristic of a bond as a financial instrument makes it a crucial element in the broader context of liabilities and debt financing. While it does indeed represent a liability for the issuer, the primary defining feature is the promise of repayment, including its known terms and conditions. A bond is not an equity investment, nor is it simply a form of liability in a general sense; it has specific features regarding the repayment of principal and periodic interest that distinguish it from other forms of liabilities. Additionally, it does not qualify as a cash equivalent since it represents a financial obligation rather than immediate cash or items easily convertible to cash.