Short-term note payable

Definition

A short-term note payable is a written promise to pay a specified amount of money within one year or the company's operating cycle, whichever is longer. It often includes interest and is recorded as a liability on the balance sheet.

5 Must Know Facts For Your Next Test

1. Short-term notes payable are classified as current liabilities because they are due within one year.
2. They usually accrue interest, which must be recorded as interest expense in the financial statements.
3. The principal amount of the note payable is recorded at face value when the note is issued.
4. Journal entries for short-term notes payable typically include debiting Cash or another account and crediting Notes Payable when the note is issued.
5. Upon repayment, both the principal and any accrued interest are debited from Notes Payable and Interest Expense, respectively.

Review Questions

Related terms

Current Liability:

A debt or obligation that is expected to be settled within one year.

Interest Expense:

The cost incurred by an entity for borrowed funds, typically associated with notes payable.

Principal Amount:

The original sum of money borrowed in a loan or put into an investment.