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Accounting 3

Accounting 3. Chapter 23 Section 3. Accepting a Note Receivable from a Customer. Notes Receivable – Promissory note that a business accepts from customers that are usually paid within one year. Notes Receivable are classified as current assets.

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Accounting 3

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  1. Accounting 3 Chapter 23 Section 3

  2. Accepting a Note Receivable from a Customer • Notes Receivable – Promissory note that a business accepts from customers that are usually paid within one year. • Notes Receivable are classified as current assets. • These are asked for when a customer needs more time to pay their account.

  3. Accepting a Note Receivable from a Customer • When a Note Receivable is accepted, the asset changes from an account receivable to a note receivable. • Notes Receivable is debited and Accounts Receivable and the customer account is credited. • When a note receivable is your source document, use NR in the Document No. column of the General Journal. • Example on next slide.

  4. General Journal Page ___ Doc. No. Post Ref. Date Account Title Debit Credit April 22. Accepted a 90-day, 18% note from Peter Ange for an extension of time on his account, $1000.00. Note Receivable No. 7. Apr 22 Notes Receivable NR7 1 0 0 0 00 Accts Rec/ Peter Ange 1 0 0 0 00

  5. Collecting Principal and Interest on a Note Receivable • When a note receivable reaches its maturity date, the payee receives the maturity value from the maker. • Interest Income – The interest earned on money loaned. • The interest earned on a note receivable is credited to a revenue account titled Interest Income. • Example on next slide.

  6. Cash Receipts Journal Page ___ Doc No. Post Ref. GENERAL Sales Tax Payable Date Account Title Accts Rec. Credit Sales Credit Sales Dis. Debit Cash Debit DEBIT CREDIT Debit Credit July 21. Received cash for the maturity value of Note Receivable No. 7, a 90-day, 18% note: principal, $1000.00, plus interest, $45.00; total, $1045.00. Receipt No. 484. Jl 21 Notes Receivable R484 1000.00 1045.00 Interest Income 45.00

  7. Recording a Dishonored Note Receivable • Dishonored Note – A note that is not paid when due. • The notes receivable account should only show what will probably be collected. • The amount of a dishonored note receivable should be removed from the notes receivable account.

  8. Recording a Dishonored Note Receivable • The amount of the note plus interest income earned on the note is still owed by the customer. • So, the total amount owed should be debited to the accounts receivable account in the general ledger. • This amount should also be debited to the customer’s account in the accounts receivable ledger.

  9. General Journal Page ___ Doc. No. Post Ref. Date Account Title Debit Credit May 15. Pam Carter dishonored Note Receivable No. 9, a 90-day, 18% note, maturity value due today: principal, $400.00; interest, $18.00; total, $418.00. Memorandum No. 85. May 15 Accts Rec/ Pam Carter M85 4 1 8 00 Notes Receivable 4 0 0 00 Interest Income 1 8 00

  10. General Journal Page ___ Doc. No. Post Ref. Date Account Title Debit Credit Work Together p. 606 General Journal-this slideCash Receipts Journal-next slide Feb 2 Notes Receivable NR17 1 8 0 0 00 Accts Rec/ Paul Gary 1 8 0 0 00 27 Accts Rec/ Kirk Adams M25 4 1 8 00 Notes Receivable 4 0 0 00 Click the arrow to go to the next slide for the journal on the 18th. Interest Income 1 8 00 Assignment

  11. Cash Receipts Journal Page ___ Doc No. Post Ref. GENERAL Sales Tax Payable Date Account Title Accts Rec. Credit Sales Credit Sales Dis. Debit Cash Debit DEBIT CREDIT Debit Credit Fb 18 Notes Receivable 67 500.00 515.00 Interest Income 15.00 Click on the arrow to go back to the general journal entry for the 27th.

  12. Assignment • Do Application 23-3 and 23-4 by hand. • Turn them into Mrs. Middleton. • Do 23-5 Mastery Problem on the computer. • Turn in all pages to Mrs. Middleton. • Take Chapter 23 test. • Move on to chapter 24.

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