Notes Payable vs Accounts Payable

Accounts payable is money a business owes suppliers for goods and services bought on credit, with no formal loan agreement and normally no interest. Notes payable is money owed under a signed promissory note, which states a principal amount, an interest rate, and a repayment date. Both are liabilities. The difference is that a note payable is a written borrowing arrangement, while an account payable is trade credit created by an invoice.

Last updated July 2026.

The two accounts sit next to each other on the balance sheet and get confused constantly, usually because both represent money going out. They behave differently in almost every way that matters: how they arise, whether they cost anything, how long they last, where they land on the cash flow statement, and what a lender reads into them. This guide works through each difference with the entries.

What is accounts payable?

Accounts payable is the balance a business owes its vendors for invoices it has received but not yet paid. A supplier delivers goods or performs a service, sends an invoice with terms such as net 30, and the buyer records a liability until it pays. There is no promissory note, no interest in the ordinary case, and the obligation is nearly always settled within a year, which makes it a current liability.

Most of the balance is trade credit for things the business buys to operate or resell, which is the subset called trade payables. The full cycle from invoice arrival to payment is covered in our guide to the accounts payable process.

What is notes payable?

Notes payable is the balance owed under promissory notes the business has signed. A promissory note is a written promise to pay a stated principal on a stated date, usually with interest at a stated rate. The lender might be a bank, an equipment vendor offering financing, an owner lending the company money, or a supplier who has agreed to convert an overdue balance into a formal note.

Because a note has a maturity date, it can be current or long-term, or split across both. A three-year equipment loan sits partly in current liabilities (the principal due within twelve months) and partly in long-term liabilities (everything after that). Accounts payable never splits this way.

What is the difference between notes payable and accounts payable?

Is notes payable a current liability?

It depends on the maturity date. Any principal due within twelve months of the balance sheet date is a current liability, often presented as "current portion of notes payable" or "short-term notes payable." The rest is long-term. A note payable that matures in nine months is entirely current, and a five-year note is mostly long-term with one year of principal reclassified into current liabilities at each period end.

Accounts payable requires no such analysis. If an invoice is unpaid, it is a current liability, because trade terms almost never extend beyond a year.

Are notes payable an asset or a liability?

A liability, on the books of the party that signed the note and owes the money. The party holding the note records the mirror image as notes receivable, an asset. The same relationship exists between accounts payable and accounts receivable: one company's payable is another's receivable, which is the point made at length in accounts payable vs accounts receivable.

How do you record notes payable? The journal entries

Take a business that borrows $50,000 on 1 January 2026 on a one-year note at 6% annual interest, with principal and interest due at maturity.

On the day the note is signed and the cash arrives:

At the end of each month, to accrue interest ($50,000 x 6% / 12 = $250):

At maturity, paying principal plus twelve months of interest:

Compare that with an account payable, which never touches an interest account at all. The supplier invoice is recorded as a debit to expense or inventory and a credit to accounts payable, and paying it debits accounts payable and credits cash. Every variation of that entry is worked through in our accounts payable journal entry guide.

Can accounts payable be converted into notes payable?

Yes, and it happens more often than most business owners expect. A supplier carrying a large past-due balance may agree to formalize it: the buyer signs a promissory note for the amount, usually with interest and a repayment schedule, and the supplier gets an enforceable instrument rather than an aging invoice. The entry moves the balance between two liability accounts.

Total liabilities do not change. What changes is the character of the obligation, and how it reads to anyone analyzing the balance sheet. Trade credit that has quietly become debt is a signal, and it is one reason lenders look at the accounts payable aging report rather than only the total.

What is the difference between short-term notes payable and accounts payable?

Short-term notes payable and accounts payable are both current liabilities that will be settled within a year, so on the face of the balance sheet they can look like the same thing. Three differences survive: a note carries a signed instrument, a note carries interest, and a note has a fixed maturity date rather than the payment terms printed on an invoice. A 90-day note at 8% and a net 90 invoice both mean cash leaves in three months. Only one of them costs 2% of the principal to get there.

Which is better for cash flow?

Trade credit is cheaper than borrowing, right up until it isn't. Stretching suppliers to net 60 costs nothing on paper, but it burns supplier goodwill, forfeits early payment discounts, and eventually produces late fees or tightened terms. A 2/10 net 30 discount declined is roughly 36% annualized, far more expensive than most bank debt, which is the arithmetic laid out in our early payment discount guide.

The disciplined position is to measure both. Track days payable outstanding on the trade balance and the effective interest rate on the borrowings, and stop treating "we pay slowly" as a financing strategy. Businesses that reconcile carefully catch the difference early, particularly when they pull loan payments straight from the bank statement into QuickBooks instead of keying them, because principal and interest then land in the right accounts every month rather than being lumped into a single expense line.

Where do notes payable and accounts payable appear on the financial statements?

That last row is the one that catches people. Converting a payable into a note can push a company through a leverage covenant it was previously nowhere near, because the same dollars are now debt.

Notes payable vs accounts payable vs accrued expenses

A third account belongs in the comparison, because all three are amounts owed. An accrued expense is a cost the business has incurred but has not yet been invoiced for, such as electricity consumed in the last week of the month. It has no invoice and no note. Once the invoice arrives it becomes an account payable. If it were ever formalized into a signed promise to pay, it would become a note payable. The full distinction is drawn in accrued expenses vs accounts payable, and every term used here is defined in the accounts payable glossary.

Keeping the payables balance right

Whatever the mix of trade credit and notes, the payables balance is only as accurate as the invoices behind it. Invoices booked with the wrong date land in the wrong aging bucket. Invoices booked twice inflate the liability and eventually get paid twice. Invoices sitting unopened in an inbox at period end understate it. Getting the vendor, invoice number, date, terms, and total off the document and into the ledger without retyping is where accuracy actually comes from, and it is what invoice data extraction software is for. Upload an invoice at the top of this page to see the fields it returns.