Financial Accounting

Report No. 12:

Notes Receivable

Reported by:
Cruz, Nadia Kristine
July 15, 2023
Learning Objectives:

1. To understand the concept and nature of notes

receivable.
2. To know the initial and subsequent measurement of
notes receivable.
3. To know the accounting for interest-bearing note
receivable.
4. To know the accounting for noninterest-bearing note
receivable.
 Notes Receivable

A note receivable is an asset account tied to an

underlying promissory note, which details in writing
the payment terms for a purchase between a “payee”
(typically a company, and sometimes called a creditor)
and the “maker” of the note (usually a customer or
employee, and sometimes called a debtor).
Notes Receivable vs. Notes Payable
Notes receivable are assets on a payee’s books that
represent principal owed to them. Notes payable
are the corresponding liabilities on a maker’s books,
also in the amount of outstanding principal. The
business entity doing the lending has a note
receivable and the entity doing the borrowing has a
note payable.
Sample
Sample
 Notes Receivable vs. Accounts Receivable
Notes receivable are based on formal, interest-bearing promissory notes
while accounts receivable are informal amounts owed by customers in
the normal course of business: Debtors repay accounts receivable
according to the invoice’s billing terms and don’t incur interest charges
when paid on time.

Accounts receivable are current assets because they usually have a

single, short-term due date, such as 30 or 60 days from invoice date.
Notes receivable usually have longer terms, with payments made over
regular intervals during the note’s term or in full at the maturity date.
NOTES
RECEIVABLES