1. Accounting 3
Chapter 23
Section 3

2. Accepting a Note Receivable from a Customer
Notes Receivable – Promissory note that a business accepts from customers that are usually paid within one year.
Notes Receivable are classified as current assets.
These are asked for when a customer needs more time to pay their account.

3. Accepting a Note Receivable from a Customer
When a Note Receivable is accepted, the asset changes from an account receivable to a note receivable.
Notes Receivable is debited and Accounts Receivable and the customer account is credited.
When a note receivable is your source document, use NR in the Document No. column of the General Journal.
Example on next slide.

4. April 22. Accepted a 90-day, 18% note from Peter Ange for an extension of time on his account, $ Note Receivable No. 7.
General Journal
Page ___
Date
Account Title
Post
Ref.
Doc.
No.
Debit
Credit
Apr Notes Receivable NR
Accts Rec/ Peter Ange

5. Collecting Principal and Interest on a Note Receivable
When a note receivable reaches its maturity date, the payee receives the maturity value from the maker.
Interest Income – The interest earned on money loaned.
The interest earned on a note receivable is credited to a revenue account titled Interest Income.
Example on next slide.

6. July 21. Received cash for the maturity value of Note Receivable No
July 21. Received cash for the maturity value of Note Receivable No. 7, a 90-day, 18% note: principal, $ , plus interest, $45.00; total, $ Receipt No. 484.
Cash Receipts Journal
Page ___
Date
Account Title
Post
Ref.
GENERAL
DEBIT
CREDIT
Accts Rec.
Credit
Sales
Cash
Debit
Doc
No.
Sales Tax Payable
Debit Credit
Sales Dis. Debit
Jl Notes Receivable R
Interest Income

7. Recording a Dishonored Note Receivable
Dishonored Note – A note that is not paid when due.
The notes receivable account should only show what will probably be collected.
The amount of a dishonored note receivable should be removed from the notes receivable account.

8. Recording a Dishonored Note Receivable
The amount of the note plus interest income earned on the note is still owed by the customer.
So, the total amount owed should be debited to the accounts receivable account in the general ledger.
This amount should also be debited to the customer’s account in the accounts receivable ledger.

9. May 15. Pam Carter dishonored Note Receivable No
May 15. Pam Carter dishonored Note Receivable No. 9, a 90-day, 18% note, maturity value due today: principal, $400.00; interest, $18.00; total, $ Memorandum No. 85.
General Journal
Page ___
Date
Account Title
Post
Ref.
Doc.
No.
Debit
Credit
May Accts Rec/ Pam Carter M
Notes Receivable
Interest Income

10. Work Together p. 606 General Journal-this slide Cash Receipts Journal-next slide
Page ___
Date
Account Title
Post
Ref.
Doc.
No.
Debit
Credit
Feb 2
Notes Receivable
NR17
Accts Rec/ Paul Gary 27
Accts Rec/ Kirk Adams
M25
Notes Receivable
Click the arrow to go to the next slide for the journal on the 18th.
Interest Income
Assignment

11. Cash Receipts Journal
Page ___
Date
Account Title
Post
Ref.
GENERAL
DEBIT
CREDIT
Accts Rec.
Credit
Sales
Cash
Debit
Doc
No.
Sales Tax Payable
Debit Credit
Sales Dis. Debit Fb 18
Notes Receivable 67
500.00
515.00
Interest Income
15.00
Click on the arrow to go back to the general journal entry for the 27th.

12. Assignment Do Application 23-3 and 23-4 by hand.
Turn them into Mrs. Middleton.
Do 23-5 Mastery Problem on the computer.
Turn in all pages to Mrs. Middleton.
Take Chapter 23 test.
Move on to chapter 24.