Table of contents

1. Introduction to Accounting1h 21m
2. Transaction Analysis1h 13m
3. Accrual Accounting Concepts2h 38m
4. Merchandising Operations2h 30m
5. Inventory1h 55m
6. Internal Controls and Reporting Cash1h 16m
7. Receivables and Investments3h 8m
8. Long Lived Assets5h 1m
9. Current Liabilities2h 19m
10. Time Value of Money1h 23m
- Time Value of Money Equations
  35m
- Using Time Value of Money Tables
  47m
11. Long Term Liabilities2h 45m
12. Stockholders' Equity2h 15m
13. Statement of Cash Flows2h 24m
14. Financial Statement Analysis5h 25m
15. GAAP vs IFRS56m

9. Current Liabilities

Notes Payable

Financial Accounting

9. Current Liabilities

Notes Payable

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Multiple Choice

Which of the following statements is correct regarding the Notes Payable account?

Notes Payable represents a written promise to pay a specified amount of money at a future date.

Notes Payable is classified as an equity account on the balance sheet.

Interest expense on notes payable is recorded as a reduction to the Notes Payable account.

Notes Payable is only used for non-interest-bearing obligations.

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Verified step by step guidance

Step 1: Understand the concept of Notes Payable. Notes Payable is a liability account that represents a written promise to pay a specified amount of money at a future date, often including interest. It is typically used for loans or other formal borrowing arrangements.

Step 2: Analyze the classification of Notes Payable on the balance sheet. Notes Payable is classified as a liability, not equity. It can be categorized as either a current liability (if due within one year) or a long-term liability (if due after one year).

Step 3: Examine how interest expense is recorded. Interest expense related to Notes Payable is recorded separately in the Interest Expense account, not as a reduction to the Notes Payable account. The Notes Payable account reflects the principal amount owed.

Step 4: Evaluate the use of Notes Payable for non-interest-bearing obligations. Notes Payable can be used for both interest-bearing and non-interest-bearing obligations, depending on the terms of the agreement.

Step 5: Identify the correct statement. Based on the analysis, the correct statement is: 'Notes Payable represents a written promise to pay a specified amount of money at a future date.' This aligns with the definition and purpose of the Notes Payable account.