What is the difference between Notes Payable and Accounts Payable?
While both of these are liabilities, Notes Payable involves a written promissory note. For example, if your company wishes to borrow $100,000 from its bank, the bank will require company officers to sign a formal loan agreement before the bank provides the money. (The bank might also require your company to pledge collateral and for the company owners to personally guarantee the loan.) Perhaps the loan paperwork will be a half inch high. Your company will record this loan in its general ledger account, Notes Payable. (The bank will record the loan in its general ledger account Notes Receivable.)
Contrast the bank loan with phoning one of your company’s suppliers and asking for a delivery of products or supplies. On the next day the products arrive and you sign the delivery receipt. A few days later your company receives an invoice from the supplier and it states that the payment for the products is due in 30 days. This transaction did not involve a promissory note. As a result, this transaction is recorded in your company’s general ledger account Accounts Payable. The supplier will record the transaction with a debit to its asset account Accounts Receivable (and a credit to its account Sales).
Learn more about the Balance Sheet.
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CAN YOU GIVE HOW SHALL I POST A PROMISSORY NOTE ISSUED BY ME?
The balance sheets of the Ahmed Fabrics Limited at the end of 2006 and 2007 are as follows:
Particulars 2006 2007
Assets Rs. Rs.
Cash 20,000 15,000
Accounts receivable (Net) 45,000 50,000
Merchandise Inventory 40,000 65,000
Prepaid expenses 10,000 5,000
Building and equipment 70,000 85,000
Allowance for deprecation—building and equipment (7,500) (17,500)
Land 45,000 80,000
222,500 282,500
Liabilities & Capital Rs. Rs.
Accounts payable 40,000 50,000
Accrued expenses 12,500 10,000
Notes payable—– 30,000
Mortgage payable 30,000
Capital stock, Rs.10 par 150,000 185,000
Retain earnings ( deficit) (10,000) 7,500
222,500 282,500
Land was acquired for Rs. 35,000 in exchange for capital stock, par Rs. 35,000,
during the year; equipment of Rs. 15,000 was acquired for cash. Cash dividends
of Rs. 10,000 were charged to retained earnings during the year; the transfer of
net income (Rs. 27,500) to retained earnings was the only other entry in this
account.
Required:
Prepare a statement of cash flow.