Question

Identify characteristics of notes payable that are not common to accounts payable.

Answer 1

Notes payable and Accounts payable are both used to represent the obligations that a company has to an entity. They are however different in certain ways such as:

• Payment period
• Conversion
• Entities owed

The following are differences between notes payable and accounts payable:

• Payment period - Accounts payable are to be paid in less than a year whereas Notes payable can either be less or more than a year.

• Conversion - Accounts Payable can be converted to a notes payable if the company is unable to pay them off in time. A Notes payable on the other hand, cannot be converted to an Accounts payable.

• Entities owed : Accounts payables are owed to suppliers of the company but Notes payable are owed to financial institutions.

In conclusion, notes payables and accounts payables have several differences.

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