What is 'Accretion'

Accretion is asset and earnings growth due to business expansion, a company's internal growth, or mergers and acquisitions. In finance, accretion is also the accumulation of capital gains an investor expects to receive after purchasing a bond at a discount and holding until maturity.


Purchasing bonds below their face or par value is considered buying at a discount, whereas purchasing above the face value is known as buying at a premium. In finance, accretion adjusts the cost basis from the purchase amount (discount) to the anticipated redemption amount at maturity.  For example, if a bond is purchased for an amount totaling 80% of the face amount, the accretion is 20%. 

Factoring in Bond Accounting

As interest rates increase, the value of existing bonds declines in value, which means that bonds trading in the market decline in price to reflect the interest rate increase. Since all bonds mature at the face amount, the investor recognizes a gain on a bond purchased at a discount, and that gain is recognized using accretion.

Bond Accretion (Finance)

Assume that an investor purchased a $1,000 bond for $860 and the bond matures in 10 years. Between the bond's purchase and maturity dates, the investor needs to recognize a capital gain of $140. When the bond is purchased, the $140 is posted to a discount on the bond account. Over the next 10 years, a portion of the $140 is reclassified into the bond income account each year, and the entire $140 is posted to income by the maturity date.

Earnings Accretion (Accounting)

The earnings-per-share (EPS) ratio is defined as earnings available to common shareholders divided by average common shares outstanding, and accretion refers to an increase in a firm’s EPS due to an acquisition.

Assume, for example, that a firm generates $2,000,000 in available earnings for common shareholders and that 1,000,000 shares are outstanding; the EPS ratio is $2. The company issues 200,000 shares to purchase a company that generates $600,000 in earnings for common shareholders. The new EPS for the combined companies is computed by dividing its $2,600,000 earnings by 1,200,000 outstanding shares, or $2.17. Investment professionals refer to the additional earnings as accretion due to the purchase.

  1. Accreted Value

    Bonds that accrue interest that is not related to market interest ...
  2. Effective Interest Method

    The effective interest method is the method used by a bond buyer ...
  3. Accrued Market Discount

    Accrued market discount is the gain in the value of a discount ...
  4. Bond Discount

    Bond discount is the amount by which the market price of a bond ...
  5. Zero-Coupon Bond

    A zero-coupon bond is a debt security that doesn't pay interest ...
  6. Average Effective Maturity

    For a single bond, the average effective maturity is a measure ...
Related Articles
  1. Investing

    Corporate Bond Basics: Learn to Invest

    Understand the basics of corporate bonds to increase your chances of positive returns.
  2. Investing

    How To Choose The Right Bond For You

    Bond investing is a stable and low-risk way to diversify a portfolio. However, knowing which types of bonds are right for you is not always easy.
  3. Investing

    5 Fixed Income Plays After the Fed Rate Increase

    Learn about various ways that you can adjust a fixed income investment portfolio to mitigate the potential negative effect of rising interest rates.
  4. Investing

    Key Strategies To Avoid Negative Bond Returns

    It is difficult to make money in bonds in a rising rate environment, but there are ways to avoid losses.
  5. Investing

    Know Your Cost Basis For Bonds

    Nobody likes taxes, but tax reporting is an inevitable and unavoidable part of investing. If you buy stock, determining your costs basis is a slightly frustrating but fairly straightforward exercise. ...
  6. Investing

    How Bonds Are Vital to a Successful Portfolio

    While bonds are a vital part of an investment portfolio, they are often ignored.
  7. Investing

    Taxation Rules for Bond Investors

    To sum-up there are three types of bonds: government bonds, municipal bonds, and corporate bonds. Find out how each of these bonds are taxed and what you can do as an investor.
  8. Investing

    The Best Bet for Retirement Income: Bonds or Bond Funds?

    Retirees seeking income from their investments typically look into bonds. Here's a look at the types of bonds, bond funds and their pros and cons.
  9. Investing

    Find the Right Bond at the Right Time

    Learn about the types of bonds you should consider investing in, when you should be buying them and how to compare yields against their time to maturity.
  1. Why is my bond worth less than face value?

    Find out how bonds can be issued or traded for less than their listed face values, and learn what causes bond prices to fluctuate ... Read Answer >>
  2. What is the difference between an accretive transaction and a dilutive transaction?

    Read about the differences between an accretive and dilutive financial transaction, particularly as it pertains to a mergers ... Read Answer >>
  3. What are the risks of investing in a bond?

    Are you thinking of investing in bond market? Learn more about bond market investment risk, including interest rate risk, ... Read Answer >>
Trading Center