How to Journalize Notes Payable to Accounts Payable

by Chuck Robert; Updated September 26, 2017

Accountants journalize transactions after analyzing the source document tied to the transaction. The journal records each transaction in a consistent format that allows businesses to easily understand the financial outcomes of business decisions. When one entity owes debt to another entity, the obligation to pay off the debt to the creditor is represented by “Accounts Payable.” Accounts payable entries are placed on the balance sheet under “Current Liabilities.” Accounts payable must be paid off within a certain period of time to avoid default.

Step 1

Identify the nature of the transaction. When people and businesses owe money to banks and creditors, they have written obligations known as notes payable. The notes payable records the amount of money owed and the interest paid on the owed money. The interest accrued from the notes payable is recorded at the end of each quarter.

Step 2

Write down the date of the transaction. Enter the account to be debited to the right of the date. Write the debit value next to the account to be debited, under the "Debit" column. Under the account to be debited, record the account to be credited. To the right of the account to be credited, under the "Credit" column, write the credit value. The columns keep the debit and credit transactions organized to allow for a faster analysis of the journal entries.

Step 3

Write the name of the object that was purchased and is associated with the “Notes Payable” under “Account Title and Description.” Write down “Notes Payable” under the “Account Title and Description.” Write the credit amount in the "Credit" column.

Step 4

Include a notation describing the transaction. Include a reference number to allow the transaction to be tracked in the accounting system.

Tips

  • List all transactions in chronological order. Credits always do the opposite to an account than debits do. Debits and credits simply help you understand whether money is flowing to or from you.

Warnings

  • For a transaction to be balanced, the sum of the credits must equal the sum of the debits. Accounting allows businesses to identify problems in their finances. Journalizing entries allow businesses to identify when they are owed money or owe someone else money. Double-check everything to ensure all transactions are recorded accurately. Improperly recorded transactions prevent companies from accurately assessing their finances and can lead to allegations of fraud.

About the Author

Chuck Robert specializes in nutrition, marketing, nonprofit organizations and travel. He has been writing since 2007, serving as a ghostwriter and contributing to online publications. Robert holds a Master of Arts with a dual specialization in literature and composition from Purdue University.