Notes Payable Definition (with Examples)

July 4, 2022

Notes Payable Definition (with Examples)

Notes Payable Definition (with Examples)

One of the biggest challenges of accounting is that very often, terminologies sound similar. This might be why you’re wondering what notes payable are or unable to identify the difference between notes payable and accounts payable.

Anyway, the explanation is pretty simple. So let’s take a closer look at notes payable, including its definition and everything else you need to know.

What are notes payable?

When you are preparing your business balance sheet, you will list all your current liabilities like credit card debt, accounts payable, and so on. Those are short-term liabilities that you usually need to repay monthly.

However, if you’re like most businesses and you have financing for vehicles, properties, or something else, those are long-term liabilities, and they are recorded separately in the long-term liabilities section. Those kinds of financing deals that will be repaid over a long time are known as notes payable.

Notes payable is usually divided into bank debt and other notes payable. Other notes payable would be any money that you owe to any kind of financier with a long-term repayment plan. In other words, the notes payable definition is that it is any long-term loan you have to repay, whether it is secured or unsecured.

What is an example of notes payable?

Imagine your company needs to make some big purchases to expand your operations. You need a vehicle that costs $30,000 and some machinery that will cost you $60,000. To finance those purchases, you borrow $60,000 from your bank and use a vehicle financing specialist for your vehicle loan.

Both of those amounts will be listed as notes payable, but the $60,000 will be listed as bank debt, and the $30,000 will be listed as other notes payable. At the same time, those amounts will be added to the assets list on the other side of your balance sheet as assets.

Where to find notes payable?

Notes payable are listed on your balance sheet. So if you’re ever looking at your balance sheet and wondering what notes payable mean on a balance sheet again, you’ll know the answer!

Is notes payable a current liability?

No. As we mentioned above, notes payable are long-term liabilities, which means they are not current liabilities, which usually need to be paid monthly. It does still form part of the total liabilities on your balance sheet though.

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