Note payable

Definition

A note payable is a written promise to pay a specified amount of money at a future date. It typically includes details such as the principal amount, interest rate, and maturity date.

5 Must Know Facts For Your Next Test

1. Notes payable can be classified as either current liabilities if due within one year, or long-term liabilities if due after one year.
2. Interest expense associated with notes payable must be accrued and recorded periodically in financial statements.
3. The issuance of a note payable increases both cash (or another asset) and notes payable accounts on the balance sheet.
4. When a note payable is repaid, both the principal and any accrued interest are typically paid off.
5. Discounts on notes payable represent the difference between the face value of the note and its present value.

Related terms

Current Liabilities:

Obligations that are expected to be settled within one year.

Long-Term Liabilities: Obligations that are not expected to be settled within one year.

Interest Expense:

The cost incurred by an entity for borrowed funds, usually expressed as an annual percentage rate.