Accounting
Textbooks
Boundless Accounting
Controlling and Reporting of Cash and Receivables
Notes Receivable
Accounting Textbooks Boundless Accounting Controlling and Reporting of Cash and Receivables Notes Receivable
Accounting Textbooks Boundless Accounting Controlling and Reporting of Cash and Receivables
Accounting Textbooks Boundless Accounting
Accounting Textbooks
Accounting
Concept Version 6
Created by Boundless

Components of a Note

Notes Receivable represents claims for which formal instruments of credit are issued as evidence of debt, such as a promissory note.

Learning Objective

  • Explain the purpose of a note receivable and its format


Key Points

    • A notes receivable normally requires the debtor to pay interest and extends for time periods of 30 days or longer.
    • Often a business will allow a customer to convert their overdue accounts into a notes receivable. Doing so gives the debtor more time to pay.
    • The principle is the face value of the note. The principle equals the initial amount of credit provided.
    • The maker of a note is the party who receives the credit and promises to pay the note's holder.
    • Notes generally specify an interest rate, which is used to determine how much interest the maker of the note must pay in addition to the principal.

Terms

  • debtor

    One who owes another anything, or is under obligation, arising from express agreement, implication of law, or principles of natural justice, to pay money or to fulfill some other obligation; in bankruptcy or similar proceedings, the person who is the subject of the proceeding.

  • promissory

    Stipulating the future actions required of the parties to an insurance policy or other business agreement.

  • promissory note

    a document saying that someone owes a specific amount of money to someone else, often with the deadline and interest fees

  • maker

    the party issuing a promisory note

  • payee

    the party receiving the promisory note


Full Text

Notes Receivable

Notes Receivable represents claims for which formal instruments of credit are issued as evidence of debt, such as a promissory note. Often a business will allow a customer to convert their overdue accounts into a notes receivable. Doing so gives the debtor more time to pay. Occasionally, the notes receivable will include a personal guarantee by the owner of the debtor.

A notes receivable normally requires the debtor to pay interest and extends for time periods of 30 days or longer. Notes receivable are considered current assets if they are to be paid within 1 year and non-current if they are expected to be paid after one year.

Confederate Note Receivable

A One Hundred Dollar Confederate States of America banknote dated December 22, 1862. Issued during the American Civil War (1861–1865).

Components of a Note Receivable

Principle-the principle is the face value of the note. The principle equals the initial amount of credit provided.

Maker-the maker of a note is the party who receives the credit and promises to pay the note's holder. The maker classifies the note as a note payable.

Payee-the payee is the party that holds the note and receives payment from the maker when the note is due. The payee classifies the note as a note receivable.

Interest-notes generally specify an interest rate, which is used to determine how much interest the maker of the note must pay in addition to the principal.

Calculating interest-interest on short-term notes is calculated according to the following formula:

principle x annual interest rate x time period in years = interest

Example: interest on a four-month, 9%, $1,000 note equals $30

[ edit ]
Edit this content
Prev Concept
Valuing Accounts Receivable
Recognizing Notes Receivable
Next Concept
Subjects
  • Accounting
  • Algebra
  • Art History
  • Biology
  • Business
  • Calculus
  • Chemistry
  • Communications
  • Economics
  • Finance
  • Management
  • Marketing
  • Microbiology
  • Physics
  • Physiology
  • Political Science
  • Psychology
  • Sociology
  • Statistics
  • U.S. History
  • World History
  • Writing

Except where noted, content and user contributions on this site are licensed under CC BY-SA 4.0 with attribution required.