Notes Receivable Short-Term
Definition: Written promises to pay within 12 months
Scope:ModerateDifficulty:Easy
Written promises to pay within 12 months
Common Journal Entries
| Account | Debit | Credit |
|---|---|---|
| 1. Accept a 90-day, 6% note | ||
| Customer converts $5,000 A/R to a promissory note. | ||
| Notes ReceivableAsset+ | $5,000 | |
| Accounts ReceivableAsset− | $5,000 | |
| A/R replaced by a stronger claim with written promise and interest. | ||
| 2. Accrue interest at period end | ||
| 60 days passed; $5,000 × 6% × 60/360 = $50. | ||
| Interest ReceivableAsset+ | $50 | |
| Interest RevenueRevenue+ | $50 | |
| Revenue recognized in the period earned. | ||
| 3. Collect note at maturity | ||
| Total interest = $75. Already accrued $50. | ||
| CashAsset+ | $5,075 | |
| Notes ReceivableAsset− | $5,000 | |
| Interest ReceivableAsset− | $50 | |
| Interest RevenueRevenue+ | $25 | |
| Cash received equals principal + total interest. | ||
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
DurationShort-Term
Related Subjects
Foundation
- Promissory NoteA note receivable is backed by a promissory note
Components
- Interest ReceivableInterest accrues and is tracked as a separate receivable
Related
- Maturity ValuePrincipal plus interest due at maturity
- Dishonor a NoteWhat happens when the maker defaults on the note
Contrast
- Notes Receivable Long-TermShort-term ≤ 12 months; long-term extends beyond
- Accounts ReceivableA/R is informal; notes carry a written promise and interest
External Links
- Promissory note — Wikipedia