Most Common Difference Between Notes

Payable and Accounts Payable

Liabilities often considered dreadful are the company’s legal obligations that

occur for a business during its course of operations. Liabilities, a.k.a

accounts are the money that a business needs to pay to its vendors and

investors for the services and supplies. They are an important factor for business

and reflect on the left side of a balance sheet. Such liabilities are classified as

current or short-term liabilities. Under the common liabilities that exist in any

business, there exist two payables: accounts payable and notes payable.

What are Accounts Payable? Accounts payable are the money that your company owes to the suppliers in

against of the goods/services purchased on credit basis. These are the short

term liabilities that the company needs to pay to its suppliers in a smaller span

of time.

Most companies follow a trend of paying or getting paid in 30 days and do not

opt for generating interest payments. To analyze how well a company pays its

accounts payable, some companies calculate and find their accounts payable

turnover ratio. The formula to calculate the ratio is as follows: divide total

supplier purchases by the average accounts payable for the period. This

information is very important to managers and investors as they calculate in a

given time period how many times a company pays its account payables.

What are Notes Payable? Notes payable are the written promissory notes that a company receives when it

borrows money. For example, a company borrows $10,000 from a bank. The

company posts a credit to its notes payable account for $10,000 and a debit to

its cash account for $10,000. If a company plans to repay its notes payable

within one year, it includes it in the balance sheet as a current liability. If the

note is due after one year, the company lists the notes payable as a long-term

liability.

Interest Amount on Notes Payable The promissory note issued to the borrower states a specific amount of interest

to be paid on the money borrowed. In Most cases, software consulting

companies pay interest on the amount of money borrowed from the lender.

Some of the common interest terms ask companies to pay interests every six

months. A company is required to keep an account of all the interests paid to the

lender and the outstanding amount that is yet to be paid. When a company

accrues interest, it debits interest expense and credits interest payable. When a

company makes a payment on the principal balance and interest, it debits notes

payable, interest expense and interest payable and credits cash.

The Balance Sheet Both, accounts payable and notes payable are listed on a company’s balance

sheet as a part of its liabilities. The balance sheet is a reflection of a company’s

financial position at a given point. It is very important to managers and investors

as they use the balance sheet to make important financial decisions regarding a

company. Accounts payable and notes payable are used in coordination with

other accounts on financial statements to calculate important financial ratios.

About Invoicera Invoicera, the online invoicing software is specifically designed to cater to

individual needs of each all types of enterprise, small business, and freelancers.

With 14+ years of experience into the industry of online invoicing, we

understand the needs and cater to different business aspects with different

pricing plans.

From invoicing to tracking business expenses or managing staff tasks, you can

easily manage every single business activity. The custom invoice software for

your business for Accounts receivable and accounts payable management lets

you keep a track of every penny that is either owed to you or that your business

owes. It makes calculating and analyzing important financial ratios super easy.

30+ online payment gateways help to receive payments from the global clientele

without much hassle and cash flow super smooth. The additional features of

grouping taxes or sending invoices in any language that your client prefers help

retaining an interest in the business and road to success a little less of a hassle.

Website: https://www.invoicera.com/online-payments.html

Resource Blog: https://www.invoicera.com/blog/billing-software/difference-

accounts-payable-notes-payable/