Difference between Accounts Payable and Notes Payable | Financial Accounting II

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.

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3 thoughts on “Difference between Accounts Payable and Notes Payable | Financial Accounting II”

Mirriam says:

January 17, 2019 at 5:05 am

Thanks for sharing the difference between notes payable and accounts payable. This is very easy to understand and I got a lot of idea from this.

factorloads says:

February 11, 2019 at 6:17 am

Very comprehensive article. This is definitely a very helpfula article.This is such a very useful article. This helps me easily manage to identify the difference between accounts payable and notes payable.Thanks for sharing this article.

Business Working Capital says:

April 17, 2019 at 12:21 am

I am new to accounting . I have a business so I think that it is very important that I know this detail. This article helps me to understand the difference of accounts payable and notes payable. This article is very informative.Thanks for sharing this article.