Question

Suppose a company accepts a Note Receivable to settle a past due balance in Accounts Receivable....

Suppose a company accepts a Note Receivable to settle a past due balance in Accounts Receivable. How would the company record this transaction? Provide an example and related journal entry.

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Answer #1

Note receivable is a promissory note to pay amount due at future date to settle the current account

Example :

XYZ company accepts a 6 month 8% note receivable from existing customer on 1jan 20x8 for an amount $ 50000

Journal entry in books of XYZ company

Date Account title Debit credit
1 jan 20x8 Note receivable 50000
Accounts receivable 50000
[being note received for amount due ]
30 june 20x8 cash 52000
Note receivable 50000
Interest revenue [50000*.08*6/12] 2000
[Being note collected on due date]

If note is note collected on due date ,Journal entry:

Date Account title Debit credit
30 june 20x8 Accounts receivable 52000
Note receivable 50000
Interest revenue 2000
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