promissory note

(noun)

a document saying that someone owes a specific amount of money to someone else, often with the deadline and interest fees

Related Terms

Examples of promissory note in the following topics:

  • Notes Payable

    • A promissory note is a negotiable instrument, where one party (the maker or issuer) makes, under specific terms, an unconditional promise in writing to pay a determined sum of money to the other (the payee), either at a fixed or determinable future time or on demand by the payee.
    • Demand promissory notes are notes that do not carry a specific maturity date, but are due on demand by the lender.
    • For loans between individuals, writing and signing a promissory note are often instrumental for tax and record keeping purposes .
    • Negotiable promissory notes are used extensively in combination with mortgages in the financing of real estate transactions.
    • A promissory note due in less than a year is reported under current liabilities.

  • Components of a Note

    • Notes Receivable represents claims for which formal instruments of credit are issued as evidence of debt, such as a promissory note.
    • Notes Receivable represents claims for which formal instruments of credit are issued as evidence of debt, such as a promissory note.
    • Maker-the maker of a note is the party who receives the credit and promises to pay the note's holder.
    • The maker classifies the note as a note payable.
    • The payee classifies the note as a note receivable.

  • Types of Receivables

    • Receivables can generally be classified as accounts receivables or notes receivable, though there are other types of receivables as well.
    • Notes receivable are amounts owed to the company by customers or others who have signed formal promissory notes in acknowledgment of their debts.
    • Promissory notes strengthen a company's legal claim against those who fail to pay as promised.
    • The maturity date of a note determines whether it is placed with current assets or long-term assets on the balance sheet.
    • Notes that are due in one year or less are considered current assets, while notes that are due in more than one year are considered long-term assets.

  • Valuing Notes Receivable

    • Notes Receivable represents claims for which formal instruments of credit are issued as evidence of debt, such as a promissory note.
    • Notes receivable are considered current assets if they are to be paid within 1 year and non-current if they are expected to be paid after one year.
    • Differentiate between the allowance method and the write off method for valuing notes receivable

  • Long-Term vs. Short-Term Financing

    • Capital notes are a form of convertible security exercisable into shares.
    • Capital notes are similar to warrants, except that they often do not have an expiration date or an exercise price (hence, the entire consideration the company expects to receive, for its future issue of shares, is paid when the capital note is issued).
    • Many times, capital notes are issued in connection with a debt-for-equity swap restructuring: instead of issuing the shares (that replace debt) in the present, the company gives creditors convertible securities – capital notes – so the dilution will occur later.
    • This is an unsecured promissory note with a fixed maturity of 1 to 364 days in the global money market.
    • It is only backed by an issuing bank or corporation's promise to pay the face amount on the maturity date specified on the note.

  • Long-Term Debt

    • Money is borrowed, and usually the borrower (debtor) gives the lender (creditor) a promissory note that obligates the debtor to pay back a certain defined amount at a particular and defined time in the future .
    • A promissory note dating to 1926 from the Imperial Bank of India, Rangoon, Burma for 20,000 Rupees, plus interest.

  • Cash

    • A banknote (often known as a bill, paper money, or simply a note) is a type of negotiable instrument known as a promissory note, made by a bank, payable to the bearer on demand.

  • Commercial Paper

    • In the global money market, commercial paper is an unsecured promissory note with a fixed maturity of one to 364 days.
    • Commercial paper is a money-market security issued (sold) by large corporations to get money to meet short term debt obligations (for example, payroll), and is only backed by an issuing bank or a corporation's promise to pay the face amount on the maturity date specified on the note.
    • Typically, the longer the maturity on a note, the higher the interest rate the issuing institution must pay.

  • Balance Sheets

    • Contingent liabilities, such as warranties, are noted in the footnotes to the balance sheet.
    • Financial liabilities (excluding provisions and accounts payable), such as promissory notes and corporate bonds.

  • How Business Activities Affect the Balance Sheet