Promissory Note

Author:

Moneyzine Editor

1 mins

November 6th, 2024

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Definition

The financial accounting term promissory note is used to describe a contract whereby the borrower promises to repay the lender a specified sum of money under agreed to terms or on demand.

Explanation

Also known as a note payable, a promissory note is a contract signed by the borrower that outlines the terms and conditions of the loan with the lender. A company will report notes payable in the current liabilities section of their balance sheet.

The contract will include the amount borrowed, interest rate charged, and the term of the loan. A promissory note is sometimes referred to as an unconditional promise to repay. Repayment to the lender can occur over time, at a future point in time, or on demand under certain conditions. A demand promissory may not contain a maturity date, but will be payable to the lender with relatively short notice.

Individuals may be asked to sign promissory notes for recordkeeping purposes. For example, some student loans may require the creation of a master promissory note.

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