What is the difference between a note receivable and an accounts receivable?

• A. Note receivable is a written promise to pay with interest; accounts receivable is an open, non-formal claim.
• B. A note receivable is a liability on the seller's books.
• C. Notes are always shorter term than accounts receivable.
• D. A note receivable is a claim that earns no interest.

Answer: (A)

A note receivable is a written promise to pay a specific amount by a set date and typically includes interest, whereas accounts receivable is an informal claim from customers for goods or services sold on credit, usually without a written promise and usually without interest. This distinction matters because the note sets formal terms—a due date and an interest rate—that affect how and when interest income is recognized and how the amount is later collected or discounted. Accounts receivable reflects normal credit sales and is generally a short-term, non-formal claim that does not accrue interest unless a separate agreement specifies interest. In practice, notes are more formal and finance-oriented instruments, while accounts receivable arises from routine operations.