Accounts Payable Vs Notes Payable

The primary difference between Accounts Payable vs. Notes Payable is that the former is the amount owed by the company to its supplier when any goods are purchased, or services are availed. In contrast, the latter is the written promise to give a specific sum of money at a specified future date or per the demand of the holder who received the note.

In addition, accounts payables and notes payables are like debt categorized under current and non-current liabilities. Therefore, Current liabilities like notes and accounts payables need to be managed for efficient working capital management. Businesses need to employ specific processes to successfully manage their current obligations to succeed in the long run.

Accounts payable vs notes payable is a financial topic that explains the basic differences between the two forms of liabilities owed by the entity to the lenders. It is necessary to identify them clearly.

Accounts payable is that money which the business has to pay back to its vendors or suppliers due to credit purchase of goods and services. There is no formal agreement and can be verified from invoices or bills. The invoices have details like the payment terms, due date, amount, etc. The business does not have to bear any interest in the same. Since it is for the short term, generally within the same year, It is treated as a current liability in the balance sheet of the entity.

However, notes payable differs from the above in certain aspects even though it represents the money the business owes. The most important difference lies in the fact that notes payable have a written agreement signed by two parties, the borrower and the lender and is issued by a financial institution. The formal contract states clearly the terms and conditions like repayment schedule, principal amount, interest rate, date of maturity, etc. it is typically recorded and treated as a log term liability since it is for more than a year.

Accounts payables and notes payables are vital components for working capital and other short-term obligations, making the management of these two short-term obligations essential for a company to run its day-to-day business.

Short-term liabilities are every business’ financial obligations to maintain proper and sustainable working capital management. A good company will always manage and hold a decent amount of working capital to run the day-to-day business operations. Accounts payables and notes payable are often used interchangeably. They are a part of current liabilities on the balance sheet, but there is a slight difference when analyzed in-depth and individually.

In this article, we have shown accounts payable vs. notes payable in detail.

Here we provide you with the top 7 differences between Accounts Payable vs. Notes Payable. This is in the form of infographics which help in identifying and remembering the differences easily in the form of a chart.

It is necessary to identify some items which commonly apprear in the financial statements of a company and be able to segregate them under the two heads under the notes payable vs accounts payable examples.

Some examples of accounts payable the invoices that are generated for purchase of inventory of the business, rent payable, utility bills payable or any other short term payments to be made for running the daily business operations.

Similarly some examples of notes payable include bank loans which has to be repaid within a particular time period that is beyond one year, the debentures, bonds or commercial papers issued by the company to its investors for which interest has to be paid, etc.

Thus, the above are some important under the notes payable vs accounts payable examples.

Given below are some key differences between the two financial concepts. They are explained in detail so that the reader can easily understand the basic idea and remember them. The critical differences between Accounts Payable vs Notes Payable are as follows: –

• Accounts payables are basic financial obligations of a business classified as current liabilities. They generally do not involve a written agreement of a payment made within a specified period. On the other hand, Notes payables are written promissory notes that a company receives when it borrows money from a lender, generally financial institutions and financing or credit companies.
• A significant difference between notes payables and accounts payable is that under notes payables, the payment terms and the mode are fixed once the lending agreement is done. The credit company furnishes the funds. However, there is generally no obligation or a fixed payment term in accounts payables that the company needs to follow to make payments.
• Accounts payables are not formal written agreements; most of the time, they are verbal agreements between the two parties. On the contrary, notes payables are always a legal and written agreement.
• Accounts payables are generally due to suppliers or subcontractors; therefore, there is no legal interest on the instrument and no fixed obligation to pay. Under note payables, the instrument always bears a certain percentage of interest due every month or according to payment terms, which are decided and agreed upon initially.
• Accounts payables are always a short-term obligation and are a current liability. On the other hand, note payables can be either current or non-current liability.
• Notes payable are a loans that bear the payment terms, maturity dates, etc. On the other hand, accounts payables are an informal channel due to the vendors and the suppliers, making the payment more flexible without formal or written agreement.

Let’s now look at the head-to-head differences between Accounts Payable vs. Notes Payable.

The above chart on the differences are identified based on some important criterias like amount, time period, convertibility, uses and source or origin. These explanations will help the learner identify both the liabilities efficiently and treat them in the books of accounts accordingly.

This article has been a guide to what is Accounts Payable Vs Notes Payable. We explain the differences between them with infographics, examples & key differences. You may also have a look at the following articles: –

• Examples of Accounts Payable
• Accrued Expenses vs. Accounts Payable
• Deferred Tax Liabilities Basics
• Long-Term Liabilities Definition