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Notes Receivable

Notes receivable are formal promises to pay arising from sales or services, represented by negotiable promissory notes. If a note matures and is unpaid, it is considered dishonored and transferred to accounts receivable, including any interest and charges. Measurement involves recording short-term notes at face value and long-term notes based on whether they are interest-bearing or noninterest-bearing, with subsequent measurement at amortized cost.

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Jam Tamar Almario
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7 views1 page

Notes Receivable

Notes receivable are formal promises to pay arising from sales or services, represented by negotiable promissory notes. If a note matures and is unpaid, it is considered dishonored and transferred to accounts receivable, including any interest and charges. Measurement involves recording short-term notes at face value and long-term notes based on whether they are interest-bearing or noninterest-bearing, with subsequent measurement at amortized cost.

Uploaded by

Jam Tamar Almario
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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Notes Receivable

Notes receivable
-​ Formal promises to pay in form of notes
-​ Only claims arising froms sale or service

Negotiable Promissory note


-​ Unconditional promise in writing made by one person to another, signed by the
maker, engaging to pay on demand a sum certain in money to order or to bearer

The note may be payable on demand or at a definite future date. Notes received from
officers, employees, shareholders and affiliates shall be designated separately

Dishonored Notes
If the note matures and is not paid, dishonored. It should be removed from the notes
receivable and transferred to accounts receivable account

​ Amount debited to accounts receivable should include the face amount, interest, and
other charges

Measurement of Notes Receivable

1.​ Initial Measurement:


○​ Short-term notes (less than 1 year): Recorded at face value (no
discounting).
○​ Long-term notes (more than 1 year):
■​ Interest-bearing: Recorded at face value (the present value upon
issuance).
■​ Noninterest-bearing: Recorded at present value (discounted cash
flows using an effective interest rate).
■​ Even "noninterest-bearing" notes include interest, but it's already
included in the face value.
2.​ Subsequent Measurement:
○​ Measured at amortized cost using the effective interest method.
○​ Formula:

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