Businesses need cash to survive and sometimes getting money involves taking on debt. A "note payable" is evidence of a debt. Notes payable can provide needed capital to a business, but, like other debts and obligations, the liability detracts from the business’s total equity. Businesses report notes payable as a current or long-term debt on the balance sheet.
Business Balance Sheets
Balance sheets provide business owners, investors and other interested parties with a quick synopsis of the company’s total assets, liabilities and equity. Assets include anything that has monetary value -- bank account balances and the market value of business equipment are two examples. Liabilities are debts or financial obligations. A note payable is a liability.
Current and Long-Term Debt
The liabilities section on the balance sheet breaks down the business’s debts. There are two main types of liabilities: current and long-term. Current liabilities are debts due within12 months from the date of the balance sheet. Long-term liabilities are balances that will not be paid off within the next 12 months. A note payable may be a current or a long-term debt, or something in between, depending on the payment terms.
A note payable is evidence of an obligation owed to a bank or another creditor. Generally, the note describes the terms of a loan, including the original balance, interest rate and payment terms. If the amount of the note is due within the next 12 months, it is a current liability. If the amount will not be paid off in the next 12 months, it is a long-term debt. The balance sheet may also list the remaining outstanding balance of the note as a long-term liability, but also list the payments due within the next 12 months on the balance sheet.
Payments due on a long-term note that must be paid in the next 12 months are listed on the balance sheet, but are not necessarily considered current liabilities. The payments due within the next 12 months can be added into the current liabilities total, however, and the sum -- the total current liabilities and the total payment amounts due on the long-term note in the next 12 months -- are indicative of the business’s total obligations due within the next year.