What happens to liabilities when a premium is amortized?

When a premium is amortized, it results in a decrease in liabilities. A premium arises from the issuance of bonds at a price higher than their face value. Over time, this premium is systematically amortized, which means it is gradually recognized as an expense on the income statement and reduces the carrying amount of the liability on the balance sheet.

As the premium is amortized, the liability is effectively reduced because the bond's book value (the face amount minus the unamortized premium) decreases. This reflects the actual obligation that the company has toward bondholders, matching the expense recognition with the time over which the bond will be outstanding. Therefore, as the premium is amortized, the overall amount of liabilities associated with the bond decreases.