Notes Payable

Note payable is a promissory note written by one party, the borrower to another party the lender to assure the latter that a payment of the amount due will be paid within a certain duration. Note payable is actually a loan.

Depending on the agreement of time to pay, notes payable can either be classified in to short-term or long-term note payable

Short-term note payable is repayable within a period of one financial year or less while long-term note payable is repaid in a period more than one financial period.

Example

1st/01/2020, Pepela Co Ltd got a loan of $12,000 (note payable) by check from ABSA bank and the repayment period is 12 years with interest of 10% per annum

Required

Show the accounting entries for the above transaction

Solution

This is a case of long-term note payable

On receipt of the loan amount;