Notes Payable Short-Term
Definition: Written obligations due within 12 months
Scope:ModerateDifficulty:Easy
Written obligations due within 12 months
Common Journal Entries
| Account | Debit | Credit |
|---|---|---|
| 1. Issue note to borrow | ||
| Borrow $10,000 on a 90-day, 6% note. | ||
| CashAsset+ | $10,000 | |
| Notes PayableLiability+ | $10,000 | |
| Liability created; cash received. | ||
| 2. Accrue interest | ||
| $10,000 × 6% × 90/360 = $150. | ||
| Interest ExpenseExpense+ | $150 | |
| Interest PayableLiability+ | $150 | |
| Interest recognized in the period of borrowing. | ||
| 3. Repay note with interest | ||
| Pay $10,150 at maturity. | ||
| Notes PayableLiability− | $10,000 | |
| Interest PayableLiability− | $150 | |
| CashAsset− | $10,150 | |
| Liability and accrued interest both cleared. | ||
T-AccountsA visual representation of a ledger account shaped like the letter T. Left side shows debits, right side shows credits.
CashAsset account. Debits increase the balance. Credits decrease the balance.AssetA resource owned by the business. Normal balance: debit. Debits increase, credits decrease.
DebitLeft side of a journal entry. Increases assets and expenses. Decreases liabilities, equity, and revenue.
$10,000.00
◀ Normal bal.
CreditRight side of a journal entry. Increases liabilities, equity, and revenue. Decreases assets and expenses.
$10,150.00
$150.00
Notes PayableNotes PayableLiabilityAn obligation the business owes to others. Normal balance: credit. Credits increase, debits decrease.
DebitLeft side of a journal entry. Increases assets and expenses. Decreases liabilities, equity, and revenue.
$10,000.00
CreditRight side of a journal entry. Increases liabilities, equity, and revenue. Decreases assets and expenses.
$10,000.00
Normal bal. ▶
$0.00
Interest ExpenseExpense account — cost of borrowing money. Debits increase the balance. Credits decrease the balance.ExpenseA cost incurred in the process of earning revenue. Normal balance: debit. Debits increase, credits decrease.
DebitLeft side of a journal entry. Increases assets and expenses. Decreases liabilities, equity, and revenue.
$150.00
◀ Normal bal.
CreditRight side of a journal entry. Increases liabilities, equity, and revenue. Decreases assets and expenses.
$150.00
Interest PayableCurrent liability — interest that has been incurred but not yet paid. Credits increase the balance at period-end accrual; debits decrease it when payment is made.LiabilityAn obligation the business owes to others. Normal balance: credit. Credits increase, debits decrease.
DebitLeft side of a journal entry. Increases assets and expenses. Decreases liabilities, equity, and revenue.
$150.00
CreditRight side of a journal entry. Increases liabilities, equity, and revenue. Decreases assets and expenses.
$150.00
Normal bal. ▶
$0.00
DurationShort-Term
External Links
- Promissory note — Wikipedia