Principles of Financial Accounting · free preview
How Notes Receivable Differ from Accounts Receivable
Notes receivable are formal credit instruments carrying interest and defined terms, and they require entries for interest accrual while accounts receivable are informal short-term trade balances that settle without interest.
1. Informal balances versus written promises
Informal balances versus written promises
2. Issuing a note
Issuing a note
3. Accruing interest across periods
Accruing interest across periods
4. Dishonored notes
Dishonored notes
5. The formal difference
What most clearly separates a note receivable from an account receivable?
6. Interest computation
A 7,500 dollar note carries 10 percent annual interest for 90 days, using a 360-day year. Compute the interest.
7. Accrual timing
Why is interest accrued at December 31 on a note that matures in February?
8. Dishonored note treatment
A customer's 7,500 dollar note with 187.50 dollars of matured interest is dishonored. What entry does the holder record?
9. Maturity value
A 7,500 dollar note earns 187.50 dollars of interest over its life. Compute the maturity value in dollars, number only.
10. Old-year interest accrual
For the 7,500 dollar 10 percent 90-day note, compute interest accrued for the first 30 days in dollars, number only.
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