Notes Receivable Long-Term
Definition: Written promises to pay beyond 12 months
Scope:ModerateDifficulty:Easy
Written promises to pay beyond 12 months
Common Journal Entries
| Account | Debit | Credit |
|---|---|---|
| 1. Accept a 2-year, 5% note | ||
| Sell equipment for $20,000; buyer signs a 2-year note. | ||
| Notes ReceivableAsset+ | $20,000 | |
| Sales RevenueRevenue+ | $20,000 | |
| Long-term receivable recognized as non-current asset. | ||
| 2. Accrue first-year interest | ||
| $20,000 × 5% = $1,000. | ||
| Interest ReceivableAsset+ | $1,000 | |
| Interest RevenueRevenue+ | $1,000 | |
| Revenue earned in Year 1 accrued before cash receipt. | ||
| 3. Receive annual interest | ||
| Borrower remits $1,000 Year 1 interest. | ||
| CashAsset+ | $1,000 | |
| Interest ReceivableAsset− | $1,000 | |
| Cash increases, accrued receivable cleared. | ||
| 4. Collect at maturity | ||
| Receive $20,000 principal + $1,000 Year 2 interest. | ||
| CashAsset+ | $21,000 | |
| Notes ReceivableAsset− | $20,000 | |
| Interest RevenueRevenue+ | $1,000 | |
| Note fully settled. | ||
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.
$20,000.00
◀ Normal bal.
CreditRight side of a journal entry. Increases liabilities, equity, and revenue. Decreases assets and expenses.
$20,000.00
$0.00
Sales RevenueRevenue account — income from selling goods or services. Credits increase the balance. Debits decrease the balance.RevenueIncome 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.
$20,000.00
Normal bal. ▶
$20,000.00
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.
$1,000.00
◀ Normal bal.
CreditRight side of a journal entry. Increases liabilities, equity, and revenue. Decreases assets and expenses.
$1,000.00
$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.
$1,000.00
$1,000.00
Normal bal. ▶
$2,000.00
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.
$1,000.00
$21,000.00
◀ Normal bal.
CreditRight side of a journal entry. Increases liabilities, equity, and revenue. Decreases assets and expenses.
$22,000.00
DurationLong-Term
Related Subjects
Foundation
- Promissory NoteBacked by a formal written promise to pay
Components
- Interest ReceivableInterest must be accrued each accounting period
- Maturity DateDate the note principal comes due
Related
- Maturity ValueTotal amount due at the end of the note term
Contrast
- Notes Receivable Short-TermLong-term notes extend beyond 12 months
- Accounts ReceivableNotes are formal written promises; A/R is informal
External Links
- Promissory note — Wikipedia