What are three reasons a company would use Notes Payable ins

What are three reasons a company would use Notes Payable instead of Accounts Payable? Use specific examples to support the reasons you have listed. Include at least one internet reference that you used for your answer.

Solution

Accounts payable and notes payable are listed on a company’s balance sheet as a part of its liabilities.

The balance sheet provides a snapshot of a company’s financial position at a given point. Managers and investors use the balance sheet to make important financial decisions regarding a company.

Accounts payable and notes payable are used in conjunction with other accounts on financial statements to compute important financial ratios.

Notes Payable involves a written promissory note. For example, if your company wishes to borrow $100,000 from its bank, the bank will require company officers to sign a formal loan agreement before the bank provides the money.

The bank might also require your company to pledge collateral and for the company owners to personally guarantee the loan.

Perhaps the loan paperwork will be a half inch high. Your company will record this loan in its general ledger account, Notes Payable.

The bank will record the loan in its general ledger account Notes Receivable.