Question

On December 31, 2020, Mainstreet Inc. recognized a $100,000 note payable due on demand or on June 30, 2025, whichever is earlier, to First Bank. The repayment of the note to First Bank is not expected at any point in 2021. How will the $100,000 note payable be classified on Mainstreet's December 31, 2020, balance sheet?

Answer 1

What is Notes Payable?

Notes Payable are written agreements (promissory notes) in which one party agrees to pay the other party a certain amount of cash. Alternatively put, a note payable is a loan between two parties.

The following information is contained in a note payable:

• The amount to be paid
• The interest rate applied to the loan
• The maturity date
• Name of the maker of the note (payer)
• Name of the payee
• The signature of the person who issued the note with the date signed.

2. Notes Payable on a Balance Sheet

Notes payable appear as liabilities on a balance sheet. Additionally, they are classified as current liabilities when the amounts are due within a year. When a note’s maturity is more than one year in the future, it is classified with long-term liabilities.

It is shown in Balance Sheet as :

Balance sheet Amount Amount XXX XXX XXX Assets Current Assets Cash Short-Term Investments Net-Accounts Receivable Inventories Prepaid Total Current assets Equipment Total Assets XXX XXX XXX XXX XXX Liabilities Current Liabilities Notes Payable (Long Term) Total Stockholders Equity Total liabilities and stockholders' equity XXX $100,000 XXX XXXXX

It is shown as a Long Term Liability because the payment is not done within 1 year.