Unsure that the difference in between notes payable and accounts payable? check out our explanation that what note payable is and also how it different from accounts payable.


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This balance sheet display screens three notes payable entries: bank of any City Loan, equipment Loan, and Bank Loan.

You are watching: When a corporation pays a note payable and interest


In this case, the bank of Anycity Loan, an equipment loan, and another bank loan space all divide as long-term liabilities, indicating the they space not due in ~ a year.

A newspaper entry instance of notes payable

The complying with is an instance of notes payable and the matching interest, and also how each is taped as a journal entry. The course, girlfriend will should be utilizing double-entry accountancy in order to document the loan properly.

You recently used for and also obtained a loan from Northwest financial institution in the quantity of $50,000. The promissory note is payable two years from the initial worry of the note, i m sorry is date January 1, 2020, therefore the note would be due December 31, 2022. In addition, there is a 6% attention rate, i m sorry is payable quarterly.

For the first journal entry, you would certainly debit your cash account in the lot of the loan: $50,000, due to the fact that your cash increases once the loan has actually been received. You will likewise credit notes payable to document the loan.


There is constantly interest on note payable, which demands to be tape-recorded separately. In this example, over there is a 6% attention rate, i beg your pardon is paid quarterly to the bank.

This will be collection up as an attention Payable account, and placed under existing liabilities, because the interest is payment quarterly, i m sorry is considered short-term. The newspaper entry would certainly look prefer this:


Interest because that the first quarter the the note payable is early April 1. The journal entry would certainly look favor this:


Interest cost will must be entered and paid each quarter for the life that the note, which is 2 years.

If you have actually not to be paying monthly top top the note, you will pay off the primary in December of 2022, which is shown on the promissory note. The newspaper entry would certainly look prefer this:


Notes payable commonly asked questions

How carry out I account for interest expense if I must pay it annually?

Instead of act a quarterly newspaper entry, you would produce a newspaper entry because that your annual interest expense, which is $1,500. The journal entry would certainly look prefer this:


If mine promissory keep in mind is for less than one year, why can not I just put my notes payable amount in account payable?

Notes payable always indicates a formal agreement between your agency and a financial college or other lender. The promissory note, i beg your pardon outlines the formal agreement, always states the amount of the loan, the repayment terms, the interest rate, and also the date the note is due.

Accounts payable meanwhile is much less formal and also is a an outcome of the credit transaction that has actually been expanded to your service from suppliers and vendors.

Can you encompass notes payable when projecting expenses?

Yes, friend can include notes payable as soon as preparing gaue won projections for her business. This step consists of reducing projections by the lot of payment made ~ above principal, if also audit for any new notes payable that may be added to the balance.

Accounting for notes payable properly

As your company grows, you may discover yourself in the place of applying for and securing loans because that equipment, to purchase a building, or perhaps simply to help your company expand.

In numerous cases, this loans will certainly be in the form of notes payable, which consists of a promissory keep in mind that lays the end in information the terms of the loan, the loan amount, the interest rate, and also when repayment is expected. No recording notes payable appropriately can affect the accuracy of your financial statements, i m sorry is why it’s vital to understand this concept.

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If you looking for accounting software the can aid you much better track your organization expenses and far better track notes payable, be certain to examine out The Blueprint’s accountancy software reviews.