The amount due from the notes receivable is immediately transferred to its relevant accounts receivable. Suppose, in the above example, if Southern Company fails to make the payment against $45,750 note, the Western Company will make the following journal entry to record this default: The above example illustrates the situation where maker duly makes the payment but if the maker fails to make the payment at the date of maturity, the note is said to have been defaulted. The financial statements are key to both financial modeling and accounting. Instead, the lender will convert the notes receivable and interest due into an account. Notes payable appear as liabilities on a balance sheet Balance Sheet The balance sheet is one of the three fundamental financial statements. 05) × 1/12 = 187.5 When maker of the note defaults: If the note term does not exceed one accounting period, the. Required: Prepare journal entries to record the acquisition of the note, recognition of interest revenue and the collection of the note at due date.
The company makes adjusting entries only at the end of the year. The Western company collected the note at maturity. On October 1, 2014, the Western company received a 120 day, 5% note from Southern company in the settlement of an account of $45,000. When the face value as well as interest thereon is collected, the following entry is passed: Example: This revenue is recorded by making the following journal entry: When a note is received from a receivable, it is recorded with the face value of the note by making the following journal entry:Ī note receivable earns interest revenue for the holder. The accounting for notes receivable is simple.
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