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Wize University Introduction to Financial Accounting Textbook > Receivables

Notes Receivable

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Notes Receivable

A note receivable is a promise to pay received from an external party. It can be the result of a loan, sale of assets or an extension of an existing account

Characteristics of a Note Receivable
  • Typically lasts for a period longer than 30 days.
  • Carries interest
  • Interest should be accrued at the end of each period.
Granting Extensions on Accounts Receivable
  • Customer cannot meet credit terms.
  • Account receivable converted to a note receivable.
  • Interest begins to accrue as of date note is signed.
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Example: Notes Receivable

Prepare the journal entry to record the transaction on April 1st and on the company's fiscal year end June 30th:

April 1: Your company has just received a letter from a customer with an open account balance of $40,000. The customer is requesting a 3-month extension to the credit terms as of today.The note carries a 6% interest rate.



Practice: Notes Receivable

Prepare the journal entries to record the transactions on February 1st and March 1st. The company's fiscal year ends April 30th.

Feb 1: Sold an old machine for $50,000, accepting a 7-month note for the balance. The note carries an interest rate of 8%.
Mar 1: Accepted a 4-month note from a customer whose credit terms expired on that date. The customers balance was $10,000 and the note carries an interest rate of 12%.
Jul 1: Note received from the customer on March 11th expired and no payment had been received yet.
Sep 1: Received a payment in full for the note on the sale of the old machine.

Round your answer to 2 decimal places.

Feb 1: Sold an old machine for $50,000, accepting a 7-month note for the balance. The note carries an interest rate of 8%.
Transactions:
AccountDebitCredit