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The objective of determining an effective interest rate is to identify the economic rate of return of a financial asset based on the concepts of accrual accounting. The difference between the purchase price of an investment and the amount due at maturity (or principal payments received over the instrument's term) coupled with any coupon interest paid over the investment's life determine the investor’s rate of return on its investment. US GAAP requires the amortization of premiums and discounts (including certain deferred origination costs and fees) to be recognized through interest income. This results in the recognition of interest income based on the effective rate of return on the financial instrument.
The ASC Master Glossary provides a definition of the effective interest rate.

Definition from the ASC Master Glossary

Effective interest rate: The rate of return implicit in the financial asset, that is, the contractual interest rate adjusted for any net deferred fees or costs, premium, or discount existing at the origination or acquisition of the financial asset. For purchased financial assets with credit deterioration, however, to decouple interest income from credit loss recognition, the premium or discount at acquisition excludes the discount embedded in the purchase price that is attributable to the acquirer's assessment of credit losses at the date of acquisition.

The following sections describe some of the items that cause an adjustment to the contractual interest rate to arrive at the effective interest rate.
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