Bonds & Notes Payable — Core Concepts
Seven topics covering notes payable through bond retirement. Click any card to expand.
A note payable is a written promise to pay a specific amount (principal) plus interest on a specified date. Unlike bonds, notes are typically issued to a single lender (bank or supplier).
Short-Term Notes Payable
Due within 1 year — classified as current liability on the balance sheet.
Long-Term Notes Payable
Due beyond 1 year — classified as non-current liability on the balance sheet.
Interest Formula
Interest = Principal × Rate × Time
Time = days/365 or months/12
Worked Example — $50,000 note, 8%, issued Oct 1, FY ends Dec 31, matures Apr 1
1. Issue the note (Oct 1):
| Account | Debit | Credit |
|---|---|---|
| Cash | $50,000.00 | |
| Notes Payable | $50,000.00 |
2. Accrue interest at year-end (Dec 31) — 3 months:
Interest = $50,000 × 8% × 3/12 = $1,000
| Account | Debit | Credit |
|---|---|---|
| Interest Expense | $1,000.00 | |
| Interest Payable | $1,000.00 |
3. Pay off at maturity (Apr 1) — total 6 months:
Total interest = $50,000 × 8% × 6/12 = $2,000
| Account | Debit | Credit |
|---|---|---|
| Notes Payable | $50,000.00 | |
| Interest Payable | $1,000.00 | |
| Interest Expense | $1,000.00 | |
| Cash | $52,000.00 |
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