Notes Payable is classified as which type of account, and what is its normal increase side?

Notes Payable is classified as which type of account, and what is its normal increase side?

• A. Asset, Dr.
• B. Liability, Cr.
• C. Revenue, Cr.
• D. Liability, Cr.

Answer: (D)

Notes Payable is a liability because it represents a formal promise to pay a debt to creditors. In double-entry accounting, liability accounts increase on the credit side. So the normal increase for Notes Payable is a credit. When the note is issued, you typically debit Cash and credit Notes Payable to reflect the new obligation; when you repay, you debit Notes Payable and credit Cash to reduce the liability. This isn’t an asset (assets rise with debits) or a revenue (revenues rise with credits), which is why its normal balance is on the credit side.

Notes Payable is a liability because it represents a formal promise to pay a debt to creditors. In double-entry accounting, liability accounts increase on the credit side. So the normal increase for Notes Payable is a credit. When the note is issued, you typically debit Cash and credit Notes Payable to reflect the new obligation; when you repay, you debit Notes Payable and credit Cash to reduce the liability. This isn’t an asset (assets rise with debits) or a revenue (revenues rise with credits), which is why its normal balance is on the credit side.