Notes Receivable

Code: 1185
👁 Views: 162

Account Information

Financial Statement Statement of Financial Position
Normal Balance Debit

Definition

Promissory notes and debt instruments receivable within one year, arising from credit sales of goods or services.

Common Journal Entries

Receive promissory note from customer for credit sale

Dr. Notes Receivable
Cr. Accounts Receivable

Collection of notes receivable in cash at maturity date

Dr. Bank Account
Cr. Notes Receivable

Accrual of interest on notes receivable (usually recorded at collection)

Dr. Accrued Interest (or Bank upon collection)
Cr. Interest Income

Discounting a notes receivable with the bank before maturity for immediate liquidity

Dr. Bank Account (discounted value)
Dr. Notes Receivable Discount Expense
Cr. Notes Receivable

📐 IFRS vs US GAAP Accounting Treatment

IFRS IFRS 9 Financial Instruments
US GAAP ASC 310 Receivables

❓ Frequently Asked Questions

Q: What is the difference between notes receivable and accounts receivable?

A: Accounts receivable are open balances (without a written debt instrument), while notes receivable are formal debt instruments (e.g., promissory note) specifying the amount and payment date.

Q: How is interest on notes receivable calculated?

A: Interest = Principal × Interest Rate × Time (days or months). Interest is recognized as revenue over time.

Q: What happens if a note is not paid at maturity?

A: The amount due (principal + interest) is transferred to Accounts Receivable (or other receivables), and an allowance for doubtful accounts may be created if collection is uncertain.

Q: What is the difference between notes receivable and promissory note?

A: Notes receivable is a broader term that includes promissory notes, bills receivable, and drafts. A promissory note is a written unconditional promise to pay.