Promissory Note
A signed written promise by one party to pay a specified sum to another party on a designated date, usually with interest.
What is Promissory Note?
A promissory note is a legally binding financial instrument in which the issuer (maker) unconditionally promises to pay a stated sum of money to the payee, either on demand or at a specified future date, typically with interest at an agreed rate. On a balance sheet, the borrower records the obligation as notes payable and the lender records it as notes receivable. Promissory notes are widely used in business loans, real estate transactions, and student financing. Unlike publicly traded bonds, promissory notes are typically bilateral instruments between two parties and are not traded on exchanges.
Example
A small manufacturer issues a promissory note to a supplier for $500,000 due in 12 months at 6% annual interest. The manufacturer records a $500,000 liability under notes payable, while the supplier records a $500,000 notes receivable asset. At maturity, $530,000 is repaid — principal plus one year of interest.
Source: SEC EDGAR