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Source: Encyclopedia of Banking & Finance (9h Edition) by Charles J Woelfel
(We recommend this as work of authority.)

Bonds bought at a discount are treated exactly the same way, except that the book value of the investment is constantly being added to instead of being reduced.  The amount added to the book value at each interest period is called ACCUMULATION or ACCREDITION of the bond discount.  The appended table (Mathematics of Accumulation) illustrates the mathematical history of a bond bought at a discount and carried currently on an investment basis, e.g., a 3.0% bond, paying interest semi-annually March 1 and September 1, with four-year maturity, bought March 1, 1978 to yield 4.5%, or a cost of $945.60.

The yield is determined by multiplying the book value, which in the first instance is the purchase price, by the predetermined yield, or basis rate, 4.5%.  The net income for September 1, 1978, therefore, is determined by multiplying $945.60 by 2.25%.  This is $21.30.  The difference between $21.30 (yield or net income) and $15.00 (cash interest) is $6.30, which is the first accumulation increment to be applied in accretion of the book value of the investment.  The new book value for September 1, 1978, is the summation of $945.60 and $6.30, or $951.90.  Since the book value is constantly being increased, the net income for each subsequent interest period rises.  It will be noted that the total of the accumulation is equal to the total of the original discount in price of the bond and that provision has been made to accumulate it completely.

The entry on the books for the first interest period should be as follows:   

Dr. Cash $15.00  
Accretion of Bond Discount $  6.30
Total  $21.30  
Cr. Interest Income $21.30  
Total  $21.30  

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