Which term describes a liability in which a business promises to pay a creditor a sum of money in the future?

• A. Notes payable
• B. Notes receivable
• C. Accounts payable
• D. Accrued expenses

Answer: (A)

A written promissory note in which the business promises to pay a definite sum to a creditor on a future date creates a liability known as notes payable. This formal written instrument distinguishes this debt from other liabilities: notes receivable is money owed to the business (an asset), while accounts payable is a debt to suppliers typically without a formal promissory note. Accrued expenses are obligations for costs incurred but not yet billed or paid, not specifically tied to a promissory note. Therefore, the described liability is notes payable.