A business issues a promissory note to one of their clients for an overdue invoice. How is it tracked by a bookkeeper?

A business issues a promissory note to one of their clients for an overdue invoice. How is it tracked by a bookkeeper?

• A. Via notes receivable AND notes payable
• B. As a notes receivable
• C. As a notes payable
• D. Via notes receivable OR notes payable

Answer: (B)

When a business issues a promissory note to a client for an overdue invoice, the business is promising to pay the client later. That creates a liability for the business. In the business’s books, this is recorded as notes payable. The client, who holds the note, would record it as notes receivable. The other options mix up perspectives or imply the wrong holder of the note, since the issuer of the note records a liability, not an asset.

When a business issues a promissory note to a client for an overdue invoice, the business is promising to pay the client later. That creates a liability for the business. In the business’s books, this is recorded as notes payable. The client, who holds the note, would record it as notes receivable. The other options mix up perspectives or imply the wrong holder of the note, since the issuer of the note records a liability, not an asset.