Question

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.

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