NOTES RECEIVABLE

Notes Receivable

 Notes Receivable are claims supported by formal

promises to pay usually in the forms of notes.
 A negotiable promissory note is an unconditional
promise in writing made by one person to another,
signed by the maker engaging to pay on demand or at
a fixed determinable future time a sum certain in
money to order or to bearer.
 **take note that “notes receivable” represents only claims arising
from sale of merchandise or service in the ordinary course of
business, thus, notes received from officers, employees,
shareholders and affiliates shall be designated separately.
 Dishonored notes shall be removed from the notes
receivable account and transferred to accounts
receivable at an amount to include, if any, interest and
other charges.
Accounts receivable xxx
Notes Receivable xxx
Interest Income xxx
Initial Measurement of Notes
Receivable

 Initially, notes receivable shall be measured at present

value.
 Present value is the sum of all future cash flows
discounted using the prevailing market rate of interest
for similar notes.
 The prevailing market rate of interest is actually the
effective interest rate.
Short Term Notes Receivable

Short Term Notes receivable are measured at

face value.
Long Term Notes Receivable

 Interest bearing long tem notes are measured at face

value which is actually the present value upon issuance

 Non-interest bearing long term notes are measure at

present value which is the discounted value of the
future cash flows using the effective interest rate.
Subsequent Measurement

 Notes receivable shall be measure at amortized cost subsequently.

 Amortized cost is the amount at which the note receivable is

measure initially minus principal repayment, plus or minus the
cumulative amortization of any difference between the initial
carrying amount and the principal maturity amount minus
reduction for impairment or uncollectibility.
 For long-term non-interest bearing notes receivable, the
amortized cost is the present value plus amortization of
the discount, or the face value minus the unamortized
unearned interest income.