Installment Notes

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Commonly Asked Questions about Installment Notes

Is an installment note a bond?

A note is a financial security that generally has a longer term than a bill but a shorter term than a bond.

What does an installment note payment include?

Each payment consists of (1) interest on the unpaid balance of the loan, and (2) a reduction of loan principle. While the total amount paid remains constant, the interest decreases each period and the portion applied to the loan principle increases.

What is the difference between a note payable and a bond?

You first learned notes payable are obligations with maturities of less than 5 years, and bonds payable are obligations with maturities of 5 years or greater. You then learned the journal entries to record notes/bonds payable at the inception, interest, and maturity dates.

What is the difference between a bond and a note in accounting?

Note payable is a written promissory note representing a loan from a bank or financial institution. In contrast, a bond is a debt issued to the public and considered security.

How does an installment note differ from a bond payable?

Structurally and practically, the two instruments are identical. The primary difference between notes payable and bonds stems from securities laws. Bonds are always considered and regulated as securities, while notes payable are not necessarily considered securities.

How do installment notes work?

An installment note is a loan agreement that allows a borrower to pay back a debt in regular payments, or installments, over a period of time. It usually involves a lender and a borrower, with the terms of repayment stated in writing. The note is signed by both parties to confirm the loan agreement and its terms.

What is the difference between installment note and straight note?

Installment Note most common, where monthly payments are a set amount for principal and interest throughout the term of the Note. Interest only Note monthly payments are interest only and principal is paid only at maturity. Straight Note payment of interest and principal are due at one time in one lump sum.