At the end of the third month, Interest Payable is up to $1,500, at which point you pay the interest, debit the account for $1,500, and reduce the debt to zero.

Notes payable are a formal agreement to repay a debt, explains Accounting Coach. Generally, you couple a note with periodic interest payments paid to the granter as compensation for lending the money.

To calculate the total interest liability you need three numbers: the principal, the interest rate, and the time period. For example, let's say your note carries principal of $5,000 at an annual ...

3. Calculate interest for the entire period Finally, to get the full cost you need to multiply the annual charge by the number of years specified in the promissory note.