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Financial & Managerial Accounting
Found in: Page 79
Financial & Managerial Accounting

Financial & Managerial Accounting

Book edition 7th
Author(s) John J Wild, Ken W. Shaw, Barbara Chiappetta
Pages 1096 pages
ISBN 9781259726705

Short Answer

What is the difference between a note payable and an account payable?

Basis of difference between notes payable and accounts payable can be made on – definition, nature, duration, and type of cash flow.

See the step by step solution

Step by Step Solution

Notes Payable

Notes payable is a kind of written document that states the terms of the repayment and interest rate for the borrowed amount.

Accounts Payable

Accounts payable are the short-term dues to be paid to suppliers, vendors, etc. These accounts payable are the result of normal operating activities.

Point of difference

Basis of difference

Notes Payable

Accounts Payable

1. Meaning

Notes payable are the written agreement between two parties for repayment of the borrowed amount.

Accounts payable are the short-term dues for making purchases or borrowings in the normal course of business.

2. Nature

These are in written form.

This is not in written form.

3. Duration

This can be for a short period or a long period.

This is only for a short period of time.

4. Cash flow type

Cash flow raised through notes are classified under financing activity.

This is the result of normal operating activity, thus comes under operating cash flow.

Most popular questions for Business-studies Textbooks

Yi Min started an engineering firm called Min Engineering. He began operations and completed seven transactions in May, which included his initial investment of $18,000 cash. After those seven transactions, the ledger included the following accounts with normal balances.

Cash ……………………………………….. $37,600

Office supplies ………………………………... 890

Prepaid insurance …………………………...4,600

Office equipment ………………………….. 12,900

Accounts payable …………………………..12,900

Common stock …………………………….. 18,000

Dividends …………………………………….. 3,370

Engineering fees earned …………………. 36,000

Rent expense ………………………………… 7,540

Required

2. The following seven transactions produced the account balances shown above.

a. Y. Min invested $18,000 cash in the business in exchange for common stock.

b. Paid $7,540 cash for monthly rent expense for May.

c. Paid $4,600 cash in advance for the annual insurance premium beginning the next period.

d. Purchased office supplies for $890 cash.

e. Purchased $12,900 of office equipment on credit (with accounts payable).

f. Received $36,000 cash for engineering services provided in May.

g. The company paid $3,370 cash in dividends.

Prepare a Cash T-account, enter the cash effects (if any) of each transaction, and compute the ending Cash balance (code each entry in the T-account with one of the transaction codes a through g).

Business transactions completed by Hannah Venedict during the month of September are as follows.

a. Venedict invested $60,000 cash along with office equipment valued at $25,000 in exchange for common stock of a new company named HV Consulting.

b. The company purchased land valued at $40,000 and a building valued at $160,000. The purchase is paid with $30,000 cash and a long-term note payable for $170,000.

c. The company purchased $2,000 of office supplies on credit.

d. Venedict invested her personal automobile in the company in exchange for more common stock. The automobile has a value of $16,500 and is to be used exclusively in the business.

e. The company purchased $5,600 of additional office equipment on credit.

f. The company paid $1,800 cash salary to an assistant.

g. The company provided services to a client and collected $8,000 cash.

h. The company paid $635 cash for this month’s utilities.

i. The company paid $2,000 cash to settle the account payable created in transaction c.

j. The company purchased $20,300 of new office equipment by paying $20,300 cash.

k. The company completed $6,250 of services for a client, who must pay within 30 days.

l. The company paid $1,800 cash salary to an assistant.

m. The company received $4,000 cash in partial payment on the receivable created in transaction k.

n. The company paid $2,800 cash in dividends.

Required

2. Open the following ledger accounts—their account numbers are in parentheses (use the balance column format): Cash (101); Accounts Receivable (106); Office Supplies (108); Office Equipment (163); Automobiles (164); Building (170); Land (172); Accounts Payable (201); Notes Payable (250); Common Stock (307); Dividends (319); Fees Earned (402); Salaries Expense (601); and Utilities Expense (602). Post the journal entries from part 1 to the ledger accounts and enter the balance after each posting.

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