Notes Receivable Chapter 9 Part 3 NOTES RECEIVABLE

Notes Receivable Chapter 9 – Part 3

NOTES RECEIVABLE • A promissory note is a written promise to pay a specified amount of money on demand or at a definite time. • The party making the promise is the maker. • The party to whom payment is made is called the payee.

ILLUSTRATION 9 -8 FORMULA FOR CALCULATING INTEREST The basic formula for calculating interest on an interest-bearing note is: Face Value of Note X Annual Interest Rate X Time in Terms of One Year = Interest The interest rate specified on the note is an annual rate of interest.

RECOGNIZING NOTES RECEIVABLE GENERAL JOURNAL Date Account Titles and Explanation May 1 Notes Receivable Accounts Receivable — Brent Company To record acceptance of Brent Company note. Debit Credit 1, 000 Wilma Company receives a $1, 000, 6% promissory note, due in two months (July 31) from Brent Company to settle an open account.

HONOUR OF NOTES RECEIVABLE • A note is honoured when it is paid in full at its maturity date. • Wolder Co. lends Higly Inc. $10, 000 on June 1, accepting a 4. 5% interest-bearing note, due in 4 months, on September 30. • Wolder collects the maturity value of the note from Higley on September 30.

DISHONOUR OF NOTES RECEIVABLE • A dishonoured note is a note that is not paid in full at maturity. • A dishonoured note receivable is no longer negotiable. • Since the payee still has a claim against the maker of the note, the balance in Notes Receivable is usually transferred to Accounts Receivable.