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Notes Receivable Basics

Notes receivable are formal promises to pay, usually in the form of promissory notes. A promissory note is a written contract where the maker promises to pay the payee a definite sum of money. If a promissory note is not paid at maturity, it is considered dishonored and is transferred to accounts receivable along with any interest or charges. Notes receivable are initially measured at face value for short-term notes and present value for long-term non-interest bearing notes using the effective interest rate. Subsequently, long-term notes receivable are measured at amortized cost using the effective interest method.

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57 views10 pages

Notes Receivable Basics

Notes receivable are formal promises to pay, usually in the form of promissory notes. A promissory note is a written contract where the maker promises to pay the payee a definite sum of money. If a promissory note is not paid at maturity, it is considered dishonored and is transferred to accounts receivable along with any interest or charges. Notes receivable are initially measured at face value for short-term notes and present value for long-term non-interest bearing notes using the effective interest rate. Subsequently, long-term notes receivable are measured at amortized cost using the effective interest method.

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Caila Nicole Reyes
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NOTES RECEIVABLE

 Notes receivable are claims supported by formal promise to pay


usually in the form of notes.

 A promissory note is a written contract in which one person,


known as the maker, promises to pay another person, known as

Definition the payee, a definite sum of money.

 Dishonored Notes – when a promissory note matures and is not


paid, it is said to be dishonored. Theoretically, dishonored notes
are transferred to accounts receivable to include, if any, interest
and other charges.
Example of June 1, 2023

Promissory I, “customer” make commitment to pay the “entity” the sum


of Php 10,000 plus 12% interest on August 31, 2023.
Note

Notes Receivable Php 10,000


Revenue Php 10,000

Journal entry to record the receipt of NR.


Journal entry to Accounts Receivable Php 10,300
record Notes Receivable Php 10,000
Dishonored Interest Income Php 300

Notes
Measurement is the process of determining the monetary amounts
at which the elements of the financial statement are to be recognized
and carried in the statement of financial position and income
statement.

Initial Short-term Notes Receivable are measured at face value.

measurement of
Notes Long-term notes receivable:

Receivable a. Interest Bearing – measured at face value


b. Noninterest –bearing – measured at present value

Present value is the discounted value of the future cash flows using
the effective interest rate.
Subsequent
measurement of Long-term notes receivable shall be measured at amortized cost
Notes using the effective interest method.

Receivable
QUESTION #1
QUESTION #2 AND #3
QUESTION #4 AND #5

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