Accounts payable and notes payable are both types of liabilities in accounting, but they have some key differences. Here's a breakdown of how accounts payable differs from notes payable: Accounts Payable: 1. Definition: Accounts payable refers to the short-term obligations a company owes to its suppliers or vendors for goods or services received on credit. 2. Nature: It represents the unpaid invoices or bills that a company needs to settle within a short period, typically within 30 to 90 days. 3. Payment Terms: The payment terms for accounts payable are typically specified by the supplier and agreed upon by the buyer. 4. Interest: Accounts payable does not usually accrue interest unless the payment is delayed beyond the specified payment terms, resulting in late payment penalties. 5. Documentation: Accounts payable transactions are generally accompanied by invoices or billing statements from the suppliers. Notes Payable: 1. Definition: Notes payable refers to the formal written agreements in which a company borrows money from a lender, usually a financial institution, and promises to repay it over a specified period with interest. 2. Nature: It represents a long-term or medium-term borrowing arrangement with a specified repayment schedule. 3. Payment Terms: The repayment terms for notes payable are typically agreed upon at the time of borrowing and include repayment dates, interest rates, and other relevant terms. 4. Interest: Notes payable generally accrue interest over the borrowing period, and interest payments are made periodically according to the agreed-upon terms. 5. Documentation: Notes payable transactions require a formal written agreement, often known as a promissory note, outlining the terms of the borrowing. In summary, accounts payable represents short-term unpaid obligations to suppliers for goods or services received on credit, while notes payable refers to formal borrowing arrangements with financial institutions that involve longer-term repayment schedules and accrue interest.