Concept
What Is a Note Receivable?
A note receivable is a formal written promise to pay a specific amount at a definite future date, usually with interest. Notes are stronger legal instruments than accounts receivable.
PostedUpModule Details
FARLesson 4 of 5
Notes Receivable
Example
Interest Calculation
A $10,000, 90-day, 8% note receivable. Interest = Principal × Rate × Time = $10,000 × 8% × 90/360 = $200. At maturity, the company receives $10,200 (principal + interest).
Key Point
Accruing Interest at Year-End
If a note spans a year-end, interest must be accrued. For a $10,000, 8% note dated November 1: by December 31, 2 months of interest have accrued = $10,000 × 8% × 2/12 = $133. Adjusting entry: Debit Interest Receivable, Credit Interest Revenue.
Ready to test your knowledge?
Practice questions from this module to reinforce what you learned.