Question

Explain how a company's paying its notes payable more quickly will enable the company to improve its liquidity.

Answer 1

The account Notes Payable is a liability account in which a borrower's written promise to pay a lender is recorded. (The lender record's the borrower's written promise in Notes Receivable.) Generally, the written note specifies the principal amount, the date due, and the interest to be paid.Notes payable are subject to interest unlike accounts payable hence paying notes payable quickly will save the interest payment if the note payable is kept for a longer term hence savings in the interest cost would increase the liquidity.