Is notes payable debit or credit?
Understand the Problem
The question is asking whether notes payable are recorded as a debit or a credit in accounting terms. This involves understanding the nature of notes payable as a liability on a company's balance sheet.
Answer
Notes payable is credited when recorded initially and debited when repaid.
The final answer is that notes payable is a liability account and is credited when the loan is initially recorded and debited when the loan is repaid.
Answer for screen readers
The final answer is that notes payable is a liability account and is credited when the loan is initially recorded and debited when the loan is repaid.
More Information
Notes payable are recorded as a liability on the balance sheet. When the loan is initially taken, the notes payable account is credited, and cash (or the relevant asset) is debited. Upon repayment, the notes payable account is debited, and the cash account is credited.
Tips
Common mistakes include confusing notes payable with accounts payable. Notes payable involves a promissory note for borrowing funds, typically longer-term, whereas accounts payable involves short-term liabilities for goods or services purchased on credit.
Sources
- Notes Payable | Definition + Journal Entry Examples - Wall Street Prep - wallstreetprep.com
- What Is Notes Payable? | GoCardless - gocardless.com
- What Is Notes Payable? Definition, How to Record, & Examples - patriotsoftware.com