What is the primary difference between accounts payable and notes payable?

The primary distinction between accounts payable and notes payable lies in their form and nature, which is best captured by the fact that notes payable are formalized through written promissory notes. A notes payable agreement consists of a written document wherein one party promises to pay a specified amount of money to another party at a designated future date, typically with interest, making it a more formal and legally binding obligation compared to accounts payable.

Accounts payable, on the other hand, generally arise from credit purchases of goods and services and do not involve a formal written agreement. They represent short-term liabilities that a company needs to settle, but lack the structured terms and conditions found in notes payable. Consequently, notes payable tend to be used for larger amounts, involve interest calculations, and often have specific repayment terms that are more rigid compared to the more casual dynamics of accounts payable.