Question

What is meant by the discounting of a Note Receivable? Describe the four step process used to account for discounted notes.
This module expanded the examination of Cash and Cash Equivalents typically listed on the balance sheet and valuation treatment of Account and Notes Receivables Income Statement effects.

Answer 1

Similarly as records receivable can be figured, notes can be changed over into cash by selling them to a financial organization at a discount. Notes are generally discounted with response, which implies the organizationdiscounting the note consents to pay the financial establishment, if the producer dishonors the note. At the point when notes receivable are sold with plan of action, the organization has an contingent liability that must be revealed with the notes going with the financial summaries.

The four step process used to account for discounted notes are:-

i) Calculate the maturity value.
ii) Calculate the discount rate in respect of maturity value.
iii) Calculate the proceeds of maturity after giving effect of discount
iv) Calculate the net interest income or expense