Chapter 10, Problem 1DQ

To determine

Notes Payable:

Notes payable are the financial instrument which contains a written promise from the person who furnishes the note to pay a certain sum with interest to the lender on a specific date.

Bonds Payable:

Bonds payable are financial instrument, generally issued to raise a large amount of debt with an assurance to repay the sum with applicable interest.

To explain: The difference between notes payable and bonds payable.

Explanation:

Difference between notes payable and bonds payable:

• Notes payable are not issued to general public but bonds payable are issued to general public.
• Sum raised through notes payable is comparatively less than the sum which can be raised through bonds. It means bonds are generally raised for large scale borrowings.
• Bonds are issued to many lenders whereas notes are directed to one lender.
• Notes payable can be short term or long term depending on the duration for which loan raised. Bonds are generally issued to raise long term debts.
• Notes payable are usually small business debts to fund business whereas bonds payable are large scale debts to finance big projects.

Despite being similar, there are several differences between notes payable and bonds payable which have been explained above.