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  • Discounting of NR

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    Art Eezy
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    The document discusses the concept and process of discounting notes receivable (N/R). Discountin involves selling a note to a third party, usually a bank, with the seller remaining liable if the debtor defaults. Key aspects include: 1) The discounting process transfers the note from the payee (company) to an endorsee (bank). 2) Formulas are provided to calculate amounts such as net proceeds, discount, interest, and gain/loss on discounting. 3) Journal entries are shown for discounting with and without recourse, and for when the note is later honored or dishonored. 4) Presentation differs depending on if the discounting is treated as

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    Discounting-of-NR

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    The document discusses the concept and process of discounting notes receivable (N/R). Discountin involves selling a note to a third party, usually a bank, with the seller remaining liable if the debtor defaults. Key aspects include: 1) The discounting process transfers the note from the payee (company) to an endorsee (bank). 2) Formulas are provided to calculate amounts such as net proceeds, discount, interest, and gain/loss on discounting. 3) Journal entries are shown for discounting with and without recourse, and for when the note is later honored or dishonored. 4) Presentation differs depending on if the discounting is treated as

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    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
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    12 views9 pages

    Discounting of NR

    Uploaded by

    Art Eezy
    The document discusses the concept and process of discounting notes receivable (N/R). Discountin involves selling a note to a third party, usually a bank, with the seller remaining liable if the debtor defaults. Key aspects include: 1) The discounting process transfers the note from the payee (company) to an endorsee (bank). 2) Formulas are provided to calculate amounts such as net proceeds, discount, interest, and gain/loss on discounting. 3) Journal entries are shown for discounting with and without recourse, and for when the note is later honored or dishonored. 4) Presentation differs depending on if the discounting is treated as

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
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    of 9

    DISCOUNTIN

    G OF N/R
    CONCEPT OF DISCOUNTING
    - is a sale of the note to a third party, usually a bank. The sale
    is usually on a with recourse basis which means that upon
    the default of the debtor, the seller of the note becomes liable
    for its maturity value.

    Maker/ Debtor Payee/ Endorser 3rd Party/ Endorsee


    (Customer) (Company) (Bank)
    TERM OF THE NOTE

    Date of the Note Date of Discounting Date of Maturity

    Income of the Endorser Income of the Endorsee


    (Company) (Bank)

    FORMULAS
    Net Proceeds = Maturity Value – Discount
    Maturity Value = Principal + Interest
    FORMULAS

    Interest = Principal X Rate X Time


    Discount = Maturity Value X Discount Rate X Discount Time
    (Discount Date to Maturity Date)
    Carrying Amount = Principal + Accrued Interest
    Accrued Interest = Principal X Rate x Time (Up to discount date)
    Gain/Loss on Discounting = Net Proceeds - Carrying Amount
    JOURNAL ENTRIES
    WITHOUT RECOURSE
    Cash (Net Proceeds) xx
    Loss on N/R Discounting xx
    Notes Receivable xx
    Interest Income (Accrued Interest Income) xx

    WITH RECOURSE
    1. Conditional Sale
    Cash (Net Proceeds) xx
    Loss on N/R Discounting xx
    Notes Receivable-discounted xx
    Interest Income (Accrued Interest Income) xx
    JOURNAL ENTRIES
    2. Secured Borrowing
    Cash (Net Proceeds) xx
    Interest Expense xx
    Liability on N/R Discounted xx
    Interest Income (Accrued Interest Income) xx

    NOTE HAS BEEN HONORED:


    1. Conditional Sale
    N/R discounted xx
    N/R xx

    2. Secured Borrowing
    Liability on N/R Discounted xx
    N/R xx
    JOURNAL ENTRIES
    NOTE HAS BEEN DISHONORED:
    1. Conditional Sale
    N/R discounted xx
    N/R xx

    A/R xx
    Cash xx
    2. Secured Borrowing
    Liability on N/R Discounted xx
    N/R xx

    A/R xx
    Cash xx
    PRESENTATION
    CONDITIONAL SALE
    ASSET:
    Notes Receivable xx
    Notes Receivable – Discounted (xx)
    Total -0-

    SECURED BORROWING
    ASSET:
    Notes Receivable xx

    LIABILITY:
    Liability on N/R Discounted xx
    THANK
    YOU!

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