Question

Explain why a company might allow a customer to buy goods using a note receivable as opposed to using an accounts receivable account.

Answer 1

The Notes receivable are legal instrument which is an evidence for the debt eg. promisory note. The advantage of the same is that it can be transferred to another person. For example, as notes payable is an asset denoting the issuer is liable to pay, the same can be submitted to bank and can be redeemed.

In the case of account receivable account, it is not possible.

Also, the promissory notes contain the interest clause where there will be a interest charged. But, in case of Accounts receivable, there will be no interest usually. But, it depends on credit terms.