1. Chapter 10 Accounting for Notes Receivable, Unearned Revenue, and Accrued Revenue

2. 10-1 Notes Receivable Promissory notes that a business accepts from customers. April 3. Accepts a 30-day, 12% note from Duane Jansen for an extension of time on his account, $300.00. Note Receivable No. 11 A customer has bought something from us on account. Then defaults on the loan so instead of writing off the account we change it over to a note where we will charge interest. General JournalPage 4 Date Account TitleDoc NoPost RefDebitCredit April3Notes Receivable 300 Accounts Rec. / Duane Jansen 300

3. Issuing a Note for a Sale April 4. Accepts a 90-day, 12% note from Mark Carver for the sale of an appliance, $450.00 Note Receivable No. 12 We do something like this when we want to extend something over a longer period of time. For example when you hear a company say do not pay until 2 years later. General JournalPage 4 Date Account TitleDoc NoPost RefDebitCredit April4Notes Receivable 450 Sales 450

4. Receiving Cash for a Note Receivable Principal x Rate x Time = Interest 300.00 12% 30/360 3.00 Cash Receipt Journal DateAccount Title Doc No. Pt Ref General Acct Rec Credit Sales Credit Sales Tax Payable Sales Disco u n t Debit Cas h Debi t Credi t DebitCredit 3-MayNotes ReceivableR452 300 303 Interest Income 3

5. Recording a Dishonored Note Receivable June 1. Ruth Javinsky dishonored Note Receivable No. 8, a 30-day 12% General JournalPage 4 Date Account TitleDoc NoPost RefDebitCredit Jun1Accounts Rec./ Ruth JavinskyM120 252.5 Notes Receivable 250 Interest Income 2.5

6. Receiving Cash for a Dishonored Note Receivable Here is what has transpired. 1. Somebody bought something from us… 2.They defaulted on the A/R we changed it to a Notes receivable to charge interest in the belief that they will pay us. 3.They defaulted on our Note. 4.Then they have decided to pay us on a defaulted note. If the note was due in June, but they did not pay until September. We have to record the additional Interest from June to September. Maturity Value x Interest Rate x Fraction of Year = Additional Int. 252.50 12% 121/360 10.18 Cash Receipt Journal DateAccount Title Doc No. Post Ref General Acct Rec Credit Sales C r e d i t Sales Tax Payable Sales Discou n t Debit Cash Debit CreditDebit Cre d i t 30-SepRuth JavinskyR201 252.5 262.68 Interest Income 10.18

7. Section 10-2 Unearned and Accrued Revenue Revenue received in one fiscal period but not paid until the next fiscal period is called Unearned revenue. Rent IncomeUnearned Rent On December 1 st. The business that works out of our building gave us a check for $6000 (We charge $2000/ month) for December, January, and February. $6000 At the end of the year, we have to do a adjusting entry so that when we close Rent Income we will not loose the money given to us. $4000 $2000 Unearned Rent is considered to be a Liability Account

8. General JournalPage 4 Date Account TitleDoc NoPost RefDebitCredit Adjusting Entry Rent Income 4000 Unearned Rent 4000 Rent IncomeUnearned Rent $6000 $4000 $2000 $6000 for three months $2000

9. We have given two notes out….. Note Receivable No. 12. a 60-day, 10% note dated December 1, $500.00 Note Receivable No. 13 a 30-day, 10% note dated December 16, $700. We have to figure out how much interest we accrued (earned) from when we gave the loan to the end of the year. Note Principal x Rate x Fraction of year = Accrued Interest Income 12 $500 x 10% x 30/360 = $4.17 13 $700 x 10% x 15/360 = $2.92 $7.09 Note 12 = $4.17 Note 13 = $2.92

10.  So in English, we earned 7.09 from the money we gave to people, but we have not received it yet. That is called Accrued Revenue. Interest Rec. Interest Income Adj. 7.09Dec. 31 Bal 65.70 Adj. 7.09 new balance 72.79

11. Interest Rec. Interest Income Adj. 7.09Dec. 31 Bal 65.70 Adj. 7.09 new balance 72.79 Clo. 72.79 ----0-----  We have to close the revenue acct.  Remember that we have to do a reversing entry in Interest Receivable to clear that account out. Rev. 7.09 ----0----

12.  Problems  10-1,2,3,4