What is the difference between note payable and accounts payable?

• A. A note payable is a short-term obligation to suppliers; accounts payable is a formal written loan with interest.
• B. A note payable is a formal written loan with interest; accounts payable is a short-term obligation to suppliers.
• C. A note payable is a long-term liability with no interest; accounts payable is a long-term loan.
• D. A note payable is a formal written loan with interest; accounts payable is a short-term obligation to suppliers.

Answer: (D)

The main idea is the form and terms of the debt. A note payable is a formal written loan backed by a promissory note and usually carries interest, with terms that can be short or long term. Accounts payable, on the other hand, comes from purchasing goods or services on credit from suppliers and is a short-term obligation typically due soon and not backed by a formal note or interest (unless special arrangements exist). Because notes payable involve a formal instrument and interest, while accounts payable is an informal short-term creditor balance, the correct statement is that a note payable is a formal written loan with interest, and accounts payable is a short-term obligation to suppliers.