Question

A 90-day 10% note for $12,000 dated April 1, is recorded when a sale to a customer is complete. The principal amount of the note receivable is?

Answer 1

The sales is amounted to $ 12,000 so the principal amount of the note receivable on the same day must be of $ 12,000.

If the customer immediately paid ( on April 1) for the sales, then he has to pay instantly $ 12,000 to the seller.

To make the payment secure in future days arrangement of note receivable is made which associated with 10% interest. It means the buyer can enjoy certain time ( 90 days) to pay off his debts but during such relaxation time he has to incurred 10% interest rate on the principal outstanding.

Summary :

Principal amount of note receivable on April 1 = $ 12,000.