Notes payable can be structured in various ways, but GAAP recognizes the underlying economics therefore requiring the borrowers to record the note at its present value and to record interest based upon the straight line method of amortization.

Question

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Under GAAP, interest on notes payable is typically recorded using the effective interest method, not the straight-line method, to reflect the true cost of borrowing over time.

Notes Payable Can Be Structured in Various Ways, but GAAP