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 …
Scope:ModerateDifficulty:Moderate
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 ReceivableAsset+ | $5,000 | |
| Accounts ReceivableAsset− | $5,000 | |
| Replaces informal receivable with formal written promise. | ||
| 2. Accrue interest | ||
| $5,000 × 6% × 60/360 = $50. | ||
| Interest ReceivableAsset+ | $50 | |
| Interest RevenueRevenue+ | $50 | |
| Interest recognized in the period it accrues. | ||
| 3. Collect at maturity | ||
| Principal $5,000 + total interest $75. | ||
| CashAsset+ | $5,075 | |
| Notes ReceivableAsset− | $5,000 | |
| Interest ReceivableAsset− | $50 | |
| Interest RevenueRevenue+ | $25 | |
| Cash equals maturity value. | ||
T-AccountsA visual representation of a ledger account shaped like the letter T. Left side shows debits, right side shows credits.
Notes ReceivableNotes ReceivableAssetA resource owned by the business. Normal balance: debit. Debits increase, credits decrease.
DebitLeft side of a journal entry. Increases assets and expenses. Decreases liabilities, equity, and revenue.
$5,000.00
◀ Normal bal.
CreditRight side of a journal entry. Increases liabilities, equity, and revenue. Decreases assets and expenses.
$5,000.00
$0.00
Accounts ReceivableAsset account — amounts owed by customers. Debits increase the balance. Credits decrease the balance.AssetA resource owned by the business. Normal balance: debit. Debits increase, credits decrease.
DebitLeft side of a journal entry. Increases assets and expenses. Decreases liabilities, equity, and revenue.
◀ Normal bal.
CreditRight side of a journal entry. Increases liabilities, equity, and revenue. Decreases assets and expenses.
$5,000.00
$5,000.00
Interest ReceivableInterest ReceivableAssetA resource owned by the business. Normal balance: debit. Debits increase, credits decrease.
DebitLeft side of a journal entry. Increases assets and expenses. Decreases liabilities, equity, and revenue.
$50.00
◀ Normal bal.
CreditRight side of a journal entry. Increases liabilities, equity, and revenue. Decreases assets and expenses.
$50.00
$0.00
Interest RevenueInterest RevenueRevenueIncome earned from business operations. Normal balance: credit. Credits increase, debits decrease.
DebitLeft side of a journal entry. Increases assets and expenses. Decreases liabilities, equity, and revenue.
CreditRight side of a journal entry. Increases liabilities, equity, and revenue. Decreases assets and expenses.
$50.00
$25.00
Normal bal. ▶
$75.00
CashAsset account. Debits increase the balance. Credits decrease the balance.AssetA resource owned by the business. Normal balance: debit. Debits increase, credits decrease.
DebitLeft side of a journal entry. Increases assets and expenses. Decreases liabilities, equity, and revenue.
$5,075.00
◀ Normal bal.
CreditRight side of a journal entry. Increases liabilities, equity, and revenue. Decreases assets and expenses.
$5,075.00
Related Subjects
Articles (8)
External Links
- Promissory note — Wikipedia