Notes Receivable
Definition: Written promises (promissory notes) from a borrower to pay a specified amount plus interest at a future date. Classified as current or non-current …
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Written promises (promissory notes) from a borrower to pay a specified amount plus interest at a future date. Classified as current or non-current based on the due date. More formal and enforceable than accounts receivable.
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. | ||
Related Subjects
Articles (8)
External Links
- Promissory note — Wikipedia