A business purchases land and buildings for 650, and pays 350 in cash and issues a 5% note payable for the balance of 300, which is secured by a mortgage on the property. The journal entry to record the initial purchase of the property using a combination of cash and notes payable is as follows:
Notes Payable
Non Interest Bearing Note
A non interest bearing note or zero interest note does not have an interest rate and does not charge periodic interest payments on the outstanding liability. In order for the lender to get a return on the non interest bearing notes payable, they are issued at a discount to their face value.
Installment Notes
Installment notes are liabilities and represent amounts owed by a business to a third party. What distinguishes installment notes from other liabilities is that they are issued as a promissory note and repaid by fixed periodic payments.
With a promissory note, the business who issued the note (called the issuer) promises in writing, to pay an amount of money (principal and interest) to a third party (called the payee) at a given time or on demand.
Notes Payable Accounting
Notes payable are liabilities and represent amounts owed by a business to a third party. What distinguishes notes payable from other liabilities is that they are issued as a promissory note.
With a promissory note, the business who issued the note (called the issuer) promises in writing, to pay an amount of money (principal and interest) to a third party (called the payee) at a given time or on demand.