Sure . I ' m trying to reach max level which I realize would take unrealistically long normally . And I know the souls you give me won ' t get me there , but they ' ll help a lot . <| sep |> Damn , another victim of bath salts ! <| sep |> Take a step back and think about what the discount or premium is bonds sold below or above face value . A bond discount tells you that the effective rate is higher than the coupon rate . A bond premium tells you that the coupon rate is higher than the effective rate . If you sell bonds at a discount there is a liability normal credit balance , but you also have the contraliability account , the discount on bonds normal debit balance . Over the course of the bond term the discount is amortized to interest expense . Journal entry Dr Interest Expense Cr Discount on Bonds Payable Cr CashCash in this entry reflects the obligation of making the coupon payment , but interest expense shows the coupon payment plus the bond discount amortization . The amortization of the discount is a noncash activity . Remember , net income is littered with estimates and noncash items because of accrual accounting . The point of the statement of cash flows is to show the true change in cash , so several income statement and balance sheet accounts must be considered . Bottom line amortization of bond discounts increase interest expense , but it isn ' t a true cash outflow so you need to ADD it back to net income for the CF statement . Amortization of bond premium decreases interest expense , but it isn ' t a true cash inflow so you need to SUBTRACT it from net income for the CF statement .