LESSON 20 1 Promissory Notes CENTURY 21 ACCOUNTING
- Slides: 7
LESSON 20 -1 Promissory Notes CENTURY 21 ACCOUNTING © Thomson/South-Western LESSON 20 -1
2 PROMISSORY NOTE n Purpose – serves as a legal document for when money is borrowed for a period of time from a bank or other lending agency. n AKA – “note” n 2 types: n Notes Payable - promissory notes signed by a business and given to a creditor (vendor, bank, loan company). n Notes Receivable – promissory notes that a business accepts from customers. n Creditor – a person or organization to whom a liability is owed. CENTURY 21 ACCOUNTING © Thomson/South-Western LESSON 20 -1
3 PARTS OF PROMISSORY NOTES 1. Number 4. Time of a note page 589 2. Date of a note 3. Payee 5. Principle 8. Maker 6. Interest rate CENTURY 21 ACCOUNTING © Thomson/South-Western 7. Maturity date LESSON 20 -1
4 INTEREST ON PROMISSORY NOTES page 590 Interest for One Year Principle (P) × Interest Rate (R) × Time in Years (T) = Interest for One Year (I) $20, 000. 00 × 6% × 1 = $1, 200. 00 = Interest for Fraction of Year = $300. 00 Interest for Fraction of Year Principle × Interest Rate $20, 000. 00 × 6% × × CENTURY 21 ACCOUNTING © Thomson/South-Western Time as Fraction of Year 90 360 LESSON 20 -1
5 INTEREST ON PROMISSORY NOTES page 590 Maturity Value Principle + Interest = Maturity Value $20, 000. 00 + $300. 00 = $20, 300. 00 CENTURY 21 ACCOUNTING © Thomson/South-Western LESSON 20 -1
6 page 591 MATURITY DATE OF PROMISSORY NOTES May 18, 90 -Day Note May 18–May 31 June 13 days 30 days July August 1–August 16 Total 31 days 16 days 90 days 1 2 3 4 1. Subtract the date of the note from the number of days in the first month. 2. Add 30 days for June. 3. Add 31 days for July. 4. Add only 16 days in August. CENTURY 21 ACCOUNTING © Thomson/South-Western LESSON 20 -1
7 TERMS REVIEW n n n number of a note date of a note payee of a note time of a note principal of a note interest rate of a note maturity date of a note CENTURY 21 ACCOUNTING © Thomson/South-Western page 592 n n n maker of a note promissory note creditor notes payable interest maturity value LESSON 20 -1
