Notes Payable Accounting Definition

Notes Payable Accounting Definition

A note payable is a debt instrument that represents a loan from one party to another. The terms of the loan are typically spelled out in the note, including the repayment schedule, interest rate, and maturity date. In some cases, a note may be secured by collateral.

When a company takes out a loan, it will typically record a liability on its balance sheet in the form of a note payable. As payments are made on the loan, the corresponding amount will be deducted from the liability. Interest expense will also be recognized as payments are made.

Once the loan is paid off in full, the note payable account will be closed and removed from the balance sheet. Until that time, it is important to keep track of payments made on the loan so that interest expense can be properly accounted for.