Notes Payable is classified as which type of account, and what is its normal increase side?

• A. Asset, Dr.
• B. Liability, Cr.
• C. Revenue, Cr.
• D. Liability, Cr.

Answer: (D)

Notes Payable is a liability because it represents a formal promise to pay a debt to creditors. In double-entry accounting, liability accounts increase on the credit side. So the normal increase for Notes Payable is a credit. When the note is issued, you typically debit Cash and credit Notes Payable to reflect the new obligation; when you repay, you debit Notes Payable and credit Cash to reduce the liability. This isn’t an asset (assets rise with debits) or a revenue (revenues rise with credits), which is why its normal balance is on the credit side.