1. Notes Receivable
Chapter 9 – Part 3

2. NOTES RECEIVABLE
A promissory note is a written promise to pay a specified amount of money on demand or at a definite time.
The party making the promise is the maker.
The party to whom payment is made is called the payee.

3. ILLUSTRATION 9-8 FORMULA FOR CALCULATING INTEREST
The basic formula for calculating interest on an interest-bearing note is:
The interest rate specified on the note is an annual rate of interest.
Face Value
of Note
Annual
Interest
Rate
Time
in Terms of
One Year X =

4. RECOGNIZING NOTES RECEIVABLE
GENERAL JOURNAL
Date
Account Titles and Explanation
Debit
Credit
May 1
Notes Receivable
Accounts Receivable — Brent Company
To record acceptance of Brent
Company note.
1, ,000
Wilma Company receives a $1,000, 6% promissory note, due in two months (July 31) from Brent Company to settle an open account.

5. HONOUR OF NOTES RECEIVABLE
A note is honoured when it is paid in full at its maturity date.
Wolder Co. lends Higly Inc. $10,000 on June 1, accepting a 4.5% interest-bearing note, due in 4 months, on September 30.
Wolder collects the maturity value of the note from Higley on September 30.

6. DISHONOUR OF NOTES RECEIVABLE
A dishonoured note is a note that is not paid in full at maturity.
A dishonoured note receivable is no longer negotiable.
Since the payee still has a claim against the maker of the note, the balance in Notes Receivable is usually transferred to Accounts Receivable.