IOU, which stands for “I owe you,” is the abbreviation for a non-formal document that acknowledges an obligation between two parties. Although the debt typically has a monetary component, it can also pertain to other goods, such as tangible items or real estate.

IOUs, unlike bonds and promissory notes, are not regarded as legal negotiable instruments because of their informal nature, which makes them likely to contain a certain amount of uncertainty.

This means that simply because an IOU was written down and signed, the person who owes the amount is not necessarily required by law to actually pay it. IOUs can be as straightforward as a piece of paper or even a verbal agreement between relatives. IOUs are occasionally used by companies to formally record the amount they owe, for instance, to their employees or to another business.

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