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Lecture Week 9

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16 views

Lecture Week 9

Uploaded by

Ahmed El Hadidi
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Principles of Accounting (2)

College of Management and Technology in Alexandria

1
Lecture Week 9
Notes Receivable

2
Notes Receivable
Companies may grant credit in exchange for a promissory note.
A promissory note is a written promise to pay a specified amount of
money on demand or at a definite time.

Promissory notes may be used:


1. when individuals and companies lend or borrow money,
2. when amount of transaction and credit period exceed normal
limits, or
3. in settlement of accounts receivable.
3
Notes Receivable
To the Payee, the promissory note is a note receivable.
To the Maker, the promissory note is a note payable.

4
Computing Maturity and Interest
The maturity date of a note is the day the note
(principal and interest) must be repaid.
On July 10, 2020, TechCom received a $1,000, 90-day, 12%
promissory note as a result of a sale to Julia Browne.

The note is due and payable on October 8, 2020.


Interest Computation

Even
Even for
for maturities
maturities IfIf the
the note
note is
is
less
less than
than one
one year,
year, expressed
expressed in in days,
days,
the
the rate
rate is
is base
base aa year
year on
on 360
360
annualized.
annualized. days.
days.
Recognizing Notes Receivable
Notes receivable are usually recorded in a single Notes Receivable account
to simplify recordkeeping. The original notes are kept on file, including
information on the maker, rate of interest, and due date.

To illustrate the recording for the receipt of a note, we use the $1,000,
90-day, 12% promissory note from Julia Browne to TechCom. TechCom
received this note at the time of a product sale to Julia Browne.
Recording an Honored Note
The principal and
interest of a note are
due on its maturity
date.
J. Cook has a $600, 15%, 60-day note receivable due to
TechCom on December 4.
Recording a Dishonored Note
The act of dishonoring a note does not relieve the maker of the
obligation to repay the principal and interest due.

TechCom holds an $800, 12%, 60-day note of Greg Hart. At maturity,


October 14, Hart dishonors the note.
Recording End-of-Period
Interest Adjustments
On December 16, TechCom accepts a $3,000, 60-day, 12% note
from a customer in granting an extension on a past-due account.
When TechCom’s accounting period ends on December 31, $15 of
interest has accrued on the note.

$3,000 x 12% x 15/360 = $15


Recording End-of-Period
Interest Adjustments
Days in December 31
Minus the date of the note 16
Day remaining in December 15
Days in January 31
Days in February 14
Period of the note in days 60

Recording collection on note at maturity.

$3,000 x 12% x 60/360 = $60


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References
• Wild, J., Shaw, K., Chiappetta, B. and Samaha, K., 2017. Fundamental
Accounting Principles. 2nd ed. McGraw-Hill Education.
• Weygandt, J., Kimmel, P. and Kieso, D., 2019. Accounting Principles
IFRS Version. Global Edition. Wiley.

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