please explain why business's transfer accounts payable to notes payable when the business can't afford to...

please explain why business's transfer accounts payable to notes payable when the business can't afford to pay the accounts payable.

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Expert Solution

Most of the companies have to pay Accounts Payable amount within the credit period and therefore if company is not able to pay the amount within that period then they ask for more time and in that case they enter into a new contract and issue a Notes Payable where company agree to pay the amount after a specified period with interest.

In this case both parties get benefited since one gets interest on their amount and other get more time to pay the amount.

Therefore companies transfer accounts payable to notes payable accounts.

Note: Sometimes when company finds that the interest rate in market is higher, then they also try to transfer accounts payable to notes payable since in that case they get more time to pay amount and they save the interest amount or differential interest amount that they have to pay if they borrow the same from bank or outside.

I hope this clear your doubt.

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ekkarill92 answered 10 months ago

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