the difference between short-term notes payable and bonds payable

A liability is created when a company signs a note for the purpose of borrowing money or extending its payment period credit. A note may be signed for an overdue invoice when the company needs to extend its payment, when the company borrows cash, or in exchange for an asset. An extension of the normal credit period for paying amounts owed often requires that a company sign a note, resulting in a transfer of the liability from accounts payable to notes payable. Notes payable almost always require interest payments. Short-term notes payable are notes that must be repaid with 12 months.


One source of financing available to corporations is long-term bonds. (Bonds are almost never short-term). Bonds represent an obligation to repay a principal amount at a future date and pay interest, usually on a semi-annual basis. Unlike notes payable, which normally represent an amount owed to one lender, a large number of bonds are normally issued at the same time to different lenders. These lenders, also known as investors, may sell their bonds to another investor prior to their maturity.