b i o u s 2023 March

What is an IOU?

Most often, an IOU probably is produced in the heat of business as a sort of memorandum of intent and may be followed up with a more businesslike written agreement. [Important: The term IOU has become so familiar that it crops up in other contexts. A bond contract is sometimes called an IOU.]

What are the key takeaways of an IOU?

Key Takeaways. An IOU is a written acknowledgment of a debt. In business transactions, an IOU may be followed by a more formal written contract. The term IOU is used in bookkeeping to refer to accounts receivable.

Is an IOU a binding contract?

The informal nature of an IOU means there may be uncertainty about whether it is a binding contract, and the legal remedies may be harder to enforce than a formal contract such as a promissory note or a bond indenture. Due to this uncertainty, an IOU is generally not considered a negotiable instrument.

How is an IOU recorded on a balance sheet?

The IOU is thus an accounts receivable item and is counted as an asset on the balance sheet. How exactly it is recorded depends on the time frame: If the money is due in one year or less, the IOU is recorded as a current asset. If the payment is due more than a year down the road, it is recorded as a long-term asset.






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