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Receivables

Receivables. LO 6 – Accounting for Notes Receivable. LO 6. Characteristics of Notes Receivable. A note receivable, or promissory note, is a written document containing a promise to pay. Characteristics of a promissory note are as follows: The maker is the party making the promise to pay.

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Receivables

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  1. Receivables LO 6 – Accounting for Notes Receivable

  2. LO 6 Characteristics of Notes Receivable • A note receivable, or promissory note, is a written document containing a promise to pay. Characteristics of a promissory note are as follows: • The maker is the party making the promise to pay. • The payee is the party to whom the note is payable. • The face amount is the amount the note is written for on its face. (continued)

  3. LO 6 Characteristics of Notes Receivable • The issuance date is the date a note is issued. • The due date or maturity date is the date the note is to be paid. • The term of a note is the amount of time between the issuance and due dates. • The interest rate is the rate of interest that must be paid on the face amount for the term of the note.

  4. LO 6 Notes Receivable

  5. LO 6 Notes Receivable • The maturity value is the amount that must be paid at the due date of the note, which is the sum of the face amount and the interest.

  6. 90 days LO 6 Due Date of a 90-day Note • What is the due date of a 90-day note dated March 16? • Days in March 31 • Minus issuance date of note 16 • Days remaining in March 15 • Add days in April 30 • Add days in May 31 • Add days in June (due date of June 14) 14 • Term of note 90 days

  7. LO 6 Due Date of a 90-day Note

  8. LO 6 Accounting for Notes Receivable Received a $6,000, 12%, 30-day note dated November 21, 2012, in settlement of the account of W. A. Bunn Company.

  9. LO 6 Accounting for Notes Receivable On December 21, when the note matures, the firm receives $6,060 from W. A. Bunn Company ($6,000 face amount plus $60 interest).

  10. LO 6 Accounting for Notes Receivable If W. A. Bunn Company fails to pay the note on the due date, it is considered a dishonored note receivable. The note and interest are transferred back to the customer’s account receivable.

  11. LO 6 Accounting for Notes Receivable A 90-day, 12% note dated December 1, 2012, is received from Crawford Company to settle its account, which has a balance of $4,000.

  12. LO 6 Accounting for Notes Receivable Assuming that the accounting period ends on December 31, an adjusting entry is required to record the accrued interest of $40 ($4,000 x 0.12 x 30/360).

  13. LO 6 Accounting for Notes Receivable On March 1, 2013, $4,120 is received for the note ($4,000) and interest ($120).

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