What is a promissory note?

What is a promissory note?

• A. A written and signed promise to pay a sum of money at a specified time
• B. An official document listing all transactions in a ledger
• C. A short-term investment instrument
• D. A receipt for goods purchased on credit

Answer: (A)

A promissory note is a written and signed promise to pay a sum of money at a specified time. This creates a formal debt instrument between the borrower (the maker) and the lender (the payee), laying out the amount owed, the due date, and often the interest rate. In accounting, it records as a note payable for the borrower and a note receivable for the lender, reflecting a commitment to repay rather than just documenting a transaction. It’s different from a ledger entry that lists all transactions, which isn’t a promise to pay, and from a receipt for goods purchased on credit, which is proof of purchase rather than a commitment to repay a specific future amount.

A promissory note is a written and signed promise to pay a sum of money at a specified time. This creates a formal debt instrument between the borrower (the maker) and the lender (the payee), laying out the amount owed, the due date, and often the interest rate. In accounting, it records as a note payable for the borrower and a note receivable for the lender, reflecting a commitment to repay rather than just documenting a transaction. It’s different from a ledger entry that lists all transactions, which isn’t a promise to pay, and from a receipt for goods purchased on credit, which is proof of purchase rather than a commitment to repay a specific future amount.