1. CHAPTER 14
NOTES RECEIVABLE 2 2

2. Notes receivable Promissory note Credit sale: durable goods of
high value

3. Promissory Notes A promissory note is an unconditional promise
to pay a definite sum of money on demand or
at a future date.
Promissory note
Formal
Accounts Receivable
Notes Receivable 3 3

4. Promissory Notes Payee Maker
The person who signs the note and thereby promises to pay
Payee
Maker
The person to whom payment is to be made

5. Promissory Notes Dennis Taylor the order of
$1200
Wheaton, Illinois
January 5, 1999
Sixty days
after date I promise to pay to
the order of
Yankee Brothers, Inc.
One thousand two hundred
Dollars
Payable at
Wheaton Mountain Bank
Value received with interest at per annum
No Due
The Kitchen Taylor 42
March 6, 1999
12%
Dennis Taylor

6. Promissory Notes Dennis Taylor the order of
$1200
Wheaton, Illinois
January 5, 1999
Sixty days
after date I promise to pay to
the order of
Yankee Brothers, Inc.
One thousand two hundred
Dollars
Payable at
Wheaton Mountain Bank
Value received with interest at per annum
No Due
The Kitchen Taylor 42
March 6, 1999
12%
Dennis Taylor
Term
Payee
Principal
Interest Rate
Maker
Due Date

7. Maturity date The maturity date can be calculated according to the
following three methods :
1. a specific date, such as “November 11th, 2006”
2. a specific number of months after the date of the note, such as “2 months after date”
3. a specific number of days after the date of the note,
for example, “60 days after date”

8. Determining the maturity date
Life of the note expressed in terms of months
-- the due date is found by counting the
months from the date of issue
Example: If a note is issued on April 20th that
will be due in three months, the note will be
due on July 20th in the same year.

9. Determining the maturity date
Life of the note is expressed in terms of days
--you need to count the days
--include the issue date and exclude the maturity date
--include the maturity date and exclude the issue date

10. Determining the maturity date
Example: a note dated on October 3rd, and due
in 60 days, would be due on December 2nd
Including the maturity date and excluding the issue date
Days left in October days
Days in November days
Days in December days
Total days 3 4

11. Determining the maturity date
Example: a note dated on October 3rd, and due
in 60 days, would be due on December 2nd
Including the issue date and excluding the maturity date
Days left in October days
Days in November days
Days in December days
Total days 3 5

12. Determining the duration of note
If the maturity date is stated in a specific number of days from the date of note
--the duration is obvious
when the maturity date is determined on the specific
date
--you need to count the days
--include the issue date and exclude the maturity date
--include the maturity date and exclude the issue date

13. Determining the duration of note
Example: the note is issued on September 6th
and the maturity date December 11th
Including the maturity date and excluding the issue date
Days left in September days
Days in October days
Days in November days
Days in December days
Total days days

14. Determining the duration of note
Example: the note is issued on September 6th
and the maturity date December 11th
Including the issue date and excluding the maturity date
Days left in September days
Days in October days
Days in November days
Days in December days
Total days days

15. Maturity Value of the note
Non-interest note =
Maturity value
Principal (Face value )
Interest-bearing note = +
Maturity value
Principal
Interest 6 6

16. Interest calculation
I = P × R × T
Interest
Principal
Rate
Time 6 8

17. Maturity Value of the interest-bearing note= +
Maturity value
Principal
Interest = +
Principal
P × R × T

18. Maturity Value of the interest-bearing note Example
A 60-day, 6%, $4000 note ？
The maturity value +
Maturity value =
$4,000
$4,000 × 6% ×
60/360 =
$4,000 +
$40 =
$4,040 6 8

19. Discount – = To discount a note means to take out the interest
in advance. –
Proceeds =
Maturity value
Discount
When a note is discounted, the amount that the payee receives is called proceeds 11 10

20. The number of days remaining until the maturity date
Discount
The number of days remaining until the maturity date × ×
Discount =
Maturity value
Interest rate
Time – =
Proceeds
Maturity value
Maturity value × Interest × Time = ×
Maturity value
(1- interest rate × time)

21. Now, let’s look at an example of calculating proceeds
Discount Example
Now, let’s look at an example of calculating proceeds … 12 11

22. ？ Discount Example The proceeds
Suppose that a 90-day note has a maturity value of
$2,000, is due in 60 days, and is discounted at 6%
rate of interest. ？
The proceeds 13 12

23. Discount Example = = = = × $2,000 × (1 – 6% × 60/360) 99% $2,000 ×
Proceeds =
Maturity value ×
(1- interest rate × time) =
$2,000 ×
(1 – 6% × 60/360)
99% =
$2,000 × =
$1,980 13 13

24. ？ Exercise The maturity value Discount The proceeds
A $4,000, 90-day note bearing 8% rate of interest,
is discounted at 10 % on the date 30 days before
the maturity date. ？
The maturity value
Discount
The proceeds

25. Exercise = + = + = = = = – = – = = $4,000 $4,000 × 8% × 90/360 $4,080
Maturity value
Principal
Interest = +
$4,000
$4,000 × 8% ×
90/360 =
$4,080 =
Discount
Maturity value ×
Discount rate ×
Time = =
$4,080 ×
10% ×
60/360
$34 –
Proceeds =
Maturity value
Discount – = =
$4,080
$34
$4,046 14 14

26. Exercise
Assume that a $ 4,000, 8%, 90-day note is received from
a customer on August 1st.
The entry?
August 1st Notes Receivable $4,000
Revenues from sales $4,000

27. Exercise
When the note including interest is collected 90 days later
The entry?
October 30th Cash $4,320
Notes Receivable $4,000
Interest Income $320

28. Exercise
If the note is dishonored, the payee or holder of the
note will transfer the notes receivable and interest
income to accounts receivable.
The entry?
October 30th Accounts Receivable $4,320
Notes Receivable $4,000
Interest Income $320

29. Exercise If the company discounts the note on September 30th
and the discount rate is 10%
Maturity value = $4,000+$320 = $4,320
Discount = $4,320 × 10% × 30/360 = $36
Proceeds = $4,320 - $36 = $4,284

30. Exercise The entry? September 30th Cash $4,284 Notes Receivable $4,000
Interest Income $284

31. WE ARE SAILING RIGHT ALONG!!