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Promissory Note:

"A promissory note is instrument in writing (not being a bank note and a currency note) containing an unconditional undertaking signed by the maker to pay a certain sum of money only to or the the order of a certain person or to the bearer of the instrument."

The definition means that when a person gives a promise in writing to pay a certain sum of money unconditionally to another person of according to creditor's instructions, this document is called a promissory note. It is generally used for loan purposes.

Specimen/Format of Promissory Note:

The accounting treatment for promissory notes is almost the same as that of bills of exchange.

Characteristics of a Promissory Note:

  1. It should be in writing.

  2. It is a promise by a debtor to pay.

  3. The promise is always for payment of money.

  4. It is always unconditional.

  5. Acceptance is not essential.

  6. It can be endorsed.

Relevant Articles:

Definition and Explanation of Bill of Exchange
Types and Classification of Bill of Exchange
Accounting Treatment of Bill of Exchange
Discounting of a Bill of Exchange
Endorsement of Bill of Exchange
Bill of Exchange Sent to Bank for Collection
Dishonor of Bill of Exchange
Renewal of Bill of Exchange
Insolvency of One Party
Retiring a Bill of Exchange Under Rebate
Accommodation Bills of Exchange
Bills Receivable and Bills Payable Books
Promissory Note

 

 

A D V E R T I S E M E N T

 

Financial Accounting Topics


  Introduction to Accounting
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  Transactions and Accounting Equation
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  Analysis of Business Transactions
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  Journal, Ledger and Trial Balance
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  Accounting for Bills of Exchange
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  Special Journals
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  Cash Book
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Bank Reconciliation Statement
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  Final Accounts
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  Work Sheet
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  Capital and Revenue Items
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  Valuation of Inventories
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  Accounts of Non-profit Making Organizations
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  Statement of Cash Flows
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  Accounting Ratios Analysis
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  Depreciation, Provisions and Reserves
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  Accounting Dictionary
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  Financial Calculators
 
 
 
Managerial Accounting Topics

  Financial Statements
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  Cost Volume Profit Relationship
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  Variable Costing System
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  Materials and Inventory Cost Control
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  Activity Based Costing System
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  Standard Costing and Variance Analysis
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  Balanced Scorecard
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  Capital Investment Analysis/Capital Budgeting
 

 

 

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