receivables
DESCRIPTION
Receivables. LO 6 – Accounting for Notes Receivable. LO 6. Characteristics of Notes Receivable. A note receivable, or promissory note, is a written document containing a promise to pay. Characteristics of a promissory note are as follows: The maker is the party making the promise to pay. - PowerPoint PPT PresentationTRANSCRIPT
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Receivables
LO 6 – Accounting for Notes Receivable
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LO 6LO 6Characteristics of Notes ReceivableA note receivable, or promissory note, is a
written document containing a promise to pay. Characteristics of a promissory note are as follows: The maker is the party making the promise to pay. The payee is the party to whom the note is payable. The face amount is the amount the note is written for
on its face.
(continued)
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LO 6LO 6Characteristics of Notes Receivable
The issuance date is the date a note is issued. The due date or maturity date is the date the note is to
be paid. The term of a note is the amount of time between the
issuance and due dates. The interest rate is the rate of interest that must be
paid on the face amount for the term of the note.
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Notes ReceivableLO 6LO 6
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The maturity value is the amount that must be paid at the due date of the note, which is the sum of the face amount and the interest.
Notes ReceivableLO 6LO 6
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Due Date of a 90-day Note
What is the due date of a 90-day note dated March 16? Days in March 31 Minus issuance date of note 16 Days remaining in March 15 Add days in April 30 Add days in May 31 Add days in June
(due date of June 14) 14 Term of note 90
days
90 days
LO 6LO 6
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LO 6LO 6
Due Date of a 90-day Note
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Accounting for Notes Receivable
LO 6LO 6
Received a $6,000, 12%, 30-day note dated November 21, 2012, in settlement of the account of W. A. Bunn Company.
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LO 6LO 6Accounting for Notes ReceivableOn December 21, when the note matures, the firm receives $6,060 from W. A. Bunn Company ($6,000 face amount plus $60 interest).
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LO 6LO 6Accounting for Notes ReceivableIf W. A. Bunn Company fails to pay the note on the due date, it is considered a dishonored note receivable. The note and interest are transferred back to the customer’s account receivable.
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LO 6LO 6Accounting for Notes ReceivableA 90-day, 12% note dated December 1, 2012, is received from Crawford Company to settle its account, which has a balance of $4,000.
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LO 6LO 6Accounting for Notes ReceivableAssuming that the accounting period ends on December 31, an adjusting entry is required to record the accrued interest of $40 ($4,000 x 0.12 x 30/360).
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LO 6LO 6Accounting for Notes ReceivableOn March 1, 2013, $4,120 is received for the note ($4,000) and interest ($120).