Definition

Notes payable

Companies record obligations in the form of written promissory notes, called notes payable. Notes payable are often used instead of accounts payable because they give the lender formal proof of the obligation in case legal remedies are needed to collect the debt. Notes payable usually require the borrower to pay interest. Companies frequently issue them to meet short-term financing needs.

When a promissory note is interest-bearing, the amount of assets received upon the issuance of the note is generally equal to the face value of the note. Interest expense accrues over the life of the note. At maturity, the amount paid equals the face value of the note plus accrued interest.

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