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Promissory Note:

"A promissory note is instrument in writing (not being a bank note and a currency note) containing an unconditional undertaking signed by the maker to pay a certain sum of money only to or the the order of a certain person or to the bearer of the instrument."

The definition means that when a person gives a promise in writing to pay a certain sum of money unconditionally to another person of according to creditor's instructions, this document is called a promissory note. It is generally used for loan purposes.

Specimen/Format of Promissory Note:

The accounting treatment for promissory notes is almost the same as that of bills of exchange.

Characteristics of a Promissory Note:

  1. It should be in writing.

  2. It is a promise by a debtor to pay.

  3. The promise is always for payment of money.

  4. It is always unconditional.

  5. Acceptance is not essential.

  6. It can be endorsed.

Relevant Articles:

» Definition and Explanation of Bill of Exchange
» Types and Classification of Bill of Exchange
» Accounting Treatment of Bill of Exchange
» Discounting of a Bill of Exchange
» Endorsement of Bill of Exchange
» Bill of Exchange Sent to Bank for Collection
» Dishonor of Bill of Exchange
» Renewal of Bill of Exchange
» Insolvency of One Party
» Retiring a Bill of Exchange Under Rebate
» Accommodation Bills of Exchange
» Bills Receivable and Bills Payable Books
» Promissory Note




 

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