Notes Payable and Receivable Making Accounting Relevant Long-term liabilities are reported on a company’s balance sheet. Making Accounting Relevant Long-term.

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Presentation transcript:

Notes Payable and Receivable Making Accounting Relevant Long-term liabilities are reported on a company’s balance sheet. Making Accounting Relevant Long-term liabilities are reported on a company’s balance sheet. Discuss the types of long-term liabilities that a company may show on its balance sheet.

Section 1Promissory Notes What You’ll Learn  How promissory notes are used.  How to determine the due date, interest expense, and maturity value of a promissory note. What You’ll Learn  How promissory notes are used.  How to determine the due date, interest expense, and maturity value of a promissory note.

Why It’s Important In order to properly record a promissory note in the accounting records, you need to read and interpret the information found on the note itself. Why It’s Important In order to properly record a promissory note in the accounting records, you need to read and interpret the information found on the note itself. Section 1Promissory Notes (cont'd.)

Key Terms  promissory note  note payable  note receivable  principal  face value  term  issue date  payee  interest rate  maturity date  maker  interest  maturity value Key Terms  promissory note  note payable  note receivable  principal  face value  term  issue date  payee  interest rate  maturity date  maker  interest  maturity value Section 1Promissory Notes (cont'd.)

A Promise to Pay  A promissory note is a written promise to pay a certain amount of money at a specific time.  “Promissory note” is often shortened to “note.”  A promissory note is a written promise to pay a certain amount of money at a specific time.  “Promissory note” is often shortened to “note.” Section 1Promissory Notes (cont'd.)

 When a note is signed, the maker agrees to repay the note within a certain period of time, usually expressed in days or months.  This period of time is the term of the note.  Both the term and the issue date (date on which the note is signed) are needed to determine the maturity date (due date) of a note.  When a note is signed, the maker agrees to repay the note within a certain period of time, usually expressed in days or months.  This period of time is the term of the note.  Both the term and the issue date (date on which the note is signed) are needed to determine the maturity date (due date) of a note. Section 1Promissory Notes (cont'd.) Determining the Maturity Date of a Note

 Interest is the fee charged for the use of money. The interest rate is the interest stated as a percentage of the principal.  The formula used to compute interest is:  Interest is the fee charged for the use of money. The interest rate is the interest stated as a percentage of the principal.  The formula used to compute interest is: Section 1Promissory Notes (cont'd.) Calculating Interest Due on a Note Interest = Principal  Interest Rate  Time Interest = Principal  Interest Rate  Time

 If the term of a promissory note is less than one year, the time in the calculation is expressed as a fraction of one year. Section 1Promissory Notes (cont'd.) Calculating Interest on a Note (cont'd.)

Check Your Understanding If the interest rate for a promissory note is stated on an annual basis, and if the promissory note has a term that is less than one year, how is the interest for the note calculated? Section 1Promissory Notes (cont'd.)