Final answer:
Bond issue costs are recorded as a deferred charge, which is then amortized over the life of the bond, aligning with the accrual principle of matching revenues with expenses.
Step-by-step explanation:
The statement accurately describes bond issue costs, their accounting treatment, and the rationale behind it. Bond issue costs encompass various fees incurred during the issuance process, such as legal, accounting, and underwriting fees. Rather than being expensed immediately, these costs are recorded as a deferred charge on the balance sheet. The decision to defer and subsequently amortize these costs aligns with the accrual accounting principle of matching revenues with expenses.
By amortizing bond issue costs over the life of the bond, the accounting treatment spreads the associated expenses across the periods in which the bond is outstanding. This approach ensures a more accurate representation of the costs incurred in relation to the revenue generated from the bond issuance. It also contributes to the financial reporting objective of providing stakeholders with a clear and transparent depiction of the company's financial performance over time.