Difference between Accounts Payable and Notes Payable
Financial Accounting II
BBA | BBA-BI | BBA-TT | BCIS
An accounts payable is a liability that is short term, usually between two weeks and one month, while notes payable is a liability that has a longer term, the shortest of which is six months.Accounts payable is based on good faith and requires no written agreement other than a sales invoice while notes payable requires a written contract which must be signed by the debtor and which states the terms of the account.Accounts payable is not charged with interest or other fees while notes payable have a specific interest rate and service charges.Notes payable are usually offered by banks and other financial institutions while accounts payable are offered by suppliers of goods and services.
| Basis | Accounts Pyable | Notes Payable |
| Definition | Accounts Payable is the obligation that a business owes to its creditors for buying goods and services. | Note payable is a written promissory note under which a borrower obtains a specific amount of money from a lender and promises to pay it back with interest over a predetermined time period. |
| Mode of agreement | Accounts Payable is an informal and verbal agreement. | Notes Payable is an formal and written agreement. |
| Origin | It originates from the purchase of tradable items or inventories. | It originates from the purchase of tradable items or inventories and it may also evolve in case of purchase of long-lived assets or borrowing or to satisfy the existing obligation. |
| Terms | There is no specific terms such as maturity period ,interest rate included with accounts payable. | There is specific terms such as maturity period ,interest rate included with notes payable. |
| Interest | There is no interest associated with the accounts payable. | Interest is explicitly or implicitly involved with notes payable. |
| Time | It is a short term liability. | It may be short-term or long term liability. |
| Risk of custom er |
It is created in case of low risk customer. | It is created in case of high risk customer. |
| Possibility | Accounts payable can be converted into notes payable. | Notes payable can be never converted into accounts payable. |
2 Comments
Herta Pouncil
Don’t forget to say thanks. Add in a survey in there to gather up data about your customer service performance and how satisfied you made your customers.
Dane Raulino
Don’t forget to say thanks. Gathering this information helps you eliminate the problem in the future.