Note Receivable
Definition: Formal legal contract between the buyer and the company, which requires a specific payment amount at a predetermined future date, usually includes
ModerateModerate
Formal legal contract between the buyer and the company, which requires a specific payment amount at a predetermined future date, usually includes
Common Journal Entries
| Account | Debit | Credit |
|---|---|---|
| 1. Receive note from customer | ||
| Customer gives $5,000, 90-day, 6% note to settle open account. | ||
| Notes Receivable | $5,000 | |
| Accounts Receivable | $5,000 | |
| Replaces informal receivable with formal written promise. | ||
| 2. Accrue interest | ||
| $5,000 × 6% × 60/360 = $50. | ||
| Interest Receivable | $50 | |
| Interest Revenue | $50 | |
| Interest recognized in the period it accrues. | ||
| 3. Collect at maturity | ||
| Principal $5,000 + total interest $75. | ||
| Cash | $5,075 | |
| Notes Receivable | $5,000 | |
| Interest Receivable | $50 | |
| Interest Revenue | $25 | |
| Cash equals maturity value. | ||
DurationShort-Term
Related Subjects
Foundation
- Promissory NoteFormal written promise underlying the receivable
Components
- Interest ReceivableInterest accrues over the note’s life
- Maturity DateDate the note comes due
Related
- Notes ReceivablePlural form covering the same concept
- Dishonor a NoteWhen the maker fails to pay at maturity
Contrast
- Accounts ReceivableNotes are formal with interest; A/R is informal