Glossary: Notes Payable
Notes payable are obligations in the form of promissory notes with short term maturity dates of less than 12 months. Often, they are demand notes (payable upon demand). Other times they have specific maturity dates (30, 60, 90, 180, 270, 360 days maturities are typical). The notes payable always include only the principal amount of the debt. Any interest owed is listed under accruals. The proceeds of notes payable should be used to finance current assets (inventory and receivables). The use of funds must be short term so that the asset matures into cash prior to the obligation's maturation. Proper matching would indicate borrowing for seasonal swings in sales which cause swings in inventory and receivables, or to repay accounts payable when attractive discount terms are offered for early payment.
|
