Accounts payable and notes payable are both liabilities but differ in nature. Accounts payable records purchases made on credit, while notes payable records written promises to pay a specific amount plus interest by a specified date. When a company cannot pay accounts payable, the creditor may agree to a promissory note converting it to a notes payable. Notes payable records all promissory notes issued with payment due on the maturity date along with principal and interest. The stated interest rate specifies the rate, while the effective rate accounts for compounding's impact on the actual rate earned or paid.
Accounts payable and notes payable are both liabilities but differ in nature. Accounts payable records purchases made on credit, while notes payable records written promises to pay a specific amount plus interest by a specified date. When a company cannot pay accounts payable, the creditor may agree to a promissory note converting it to a notes payable. Notes payable records all promissory notes issued with payment due on the maturity date along with principal and interest. The stated interest rate specifies the rate, while the effective rate accounts for compounding's impact on the actual rate earned or paid.
Accounts payable and notes payable are both liabilities but differ in nature. Accounts payable records purchases made on credit, while notes payable records written promises to pay a specific amount plus interest by a specified date. When a company cannot pay accounts payable, the creditor may agree to a promissory note converting it to a notes payable. Notes payable records all promissory notes issued with payment due on the maturity date along with principal and interest. The stated interest rate specifies the rate, while the effective rate accounts for compounding's impact on the actual rate earned or paid.
Accounts payable and notes payable are both liabilities but differ in nature. Accounts payable records purchases made on credit, while notes payable records written promises to pay a specific amount plus interest by a specified date. When a company cannot pay accounts payable, the creditor may agree to a promissory note converting it to a notes payable. Notes payable records all promissory notes issued with payment due on the maturity date along with principal and interest. The stated interest rate specifies the rate, while the effective rate accounts for compounding's impact on the actual rate earned or paid.
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Lourdios J.
Edullantes BSA-2
ASSIGNMENT:
A. WHAT IS THE DIFEERENCE BETWEEN ACCOUNTS PAYABLE
AND NOTES PAYABLE?
Accounts Payable Accounts payable is an account on the general ledger that is mostly used to record the purchasing of goods and services on credit. It is a liability account the normally has a credit balance. The accounts payable account is mainly used to record the purchasing of goods and services so it has relevance in trees to show the incoming goods and payments to creditors. The double entry for noting accounts payable is that the accounts payable is credited while their respective account is debited. When an amount is settled for a creditor, the accounts payable account is debited while cash is credited. The majority of accounts payable has to be settled within 12 months and is recorded as a current liability in the balance sheet. It’s crucial to manage accounts payable carefully because they impact an organization’s cast position, credit rating, and overall relationship with vendors or creditors. In the event an organization is running out of cash and faces difficulty in making it short-term payments, its creditors may ask the company to accept a promissory note for the outstanding balance payable at a certain future date. If the terms and conditions of the note are agreed upon between the company and the Creditor, the note is written, signed, and issued to the creditor. That arrangement converts an account payable into a note payable. Journalizing a transaction means that the accounts payable account is debited and the notes payable account is credited. Using this approach, the organization gets a Time relaxation for making a cash payment while the creditor earns an interest income on the outstanding balance until a cash payment is made against the issued note.
Notes Payable Notes payable is a liability account that is maintained in an organization’s general ledger. It is a written promise to pay a specific amount of money within a certain time period. When a company does not have cash, it may issue a promissory note to a bank, vendor, or other financial institution to borrow the funds or acquire assets. In the case of a promissory note arrangement, the borrower makes the note and makes an unconditional promise to pay either an individual, a vendor, or financial institution who has lent money or from whom an asset has been acquired. In the promissory note, the borrower promises a certain amount of principal money plus any interest thereon at a certain date specified in the future. A promissory note generally specifies the interest rate, maturity date, collateral, and any limitations imposed by the creditor or the lender. These limitations may include restrictive covenants such as not paying dividends unless the promissory note has been settled. The notes payable account in the general ledger keeps a record of all the promissory notes a company issues to lenders of funds or vendors of assets. Because the notes payable is a liability account, the normal course of entry is crediting notes payable, and debiting cash or another asset received against it. On the maturity date, the organization has to pay the principal amount plus the interest at the rate mentioned in the note. The payment is recorded by debiting notes payable account, interest account, and then crediting the cash account. The balance in the notes payable account represents the total amount that still needs to be paid against all promissory notes the company has issued. In the majority of circumstances, promissory notes are made payable in a year’s time and the balance of notes payable is there for a reported as a current liability in the balance sheet. Handling notes payable well means making a commitment to the payments that are supposed to be made on maturity dates. If an organization fails to abide by the promise terms and conditions, it not only leads to a bad reputation but may adversely impact its overall credit score.
B. DISTINGUISH STATED INTEREST RATE VS. EFFECTIVE
INTEREST RATE
Stated interest is the specified rate on your savings account or
loan.
Effective interest is the true rate you earn or pay. There is
a difference because a stated interest rate does not take into account the effect of "compounding," which increases the rate you earn or pay
