Accounting 3 Chapter 23 Section 3 Accepting a Note Receivable from a Customer Notes Receivable – Promissory note that a business accepts from customers that are usually paid within one year. Notes Receivable are classified as current assets. These are asked for when a customer needs more time to pay their account. Accepting a Note Receivable from a Customer When a Note Receivable is accepted, the asset changes from an account receivable to a note receivable. Notes Receivable is debited and Accounts Receivable and the customer account is credited. When a note receivable is your source document, use NR in the Document No. column of the General Journal. Example on next slide. April 22. Accepted a 90-day, 18% note from Peter Ange for an extension of time on his account, $1000.00. Note Receivable No. 7. General Journal Date Apr Account Title 22 Notes Receivable Accts Rec/ Peter Ange Doc. Post No. Ref. NR7 Page ___ Debit 1 0 0 0 Credit 00 1 0 0 0 00 Collecting Principal and Interest on a Note Receivable When a note receivable reaches its maturity date, the payee receives the maturity value from the maker. Interest Income – The interest earned on money loaned. The interest earned on a note receivable is credited to a revenue account titled Interest Income. Example on next slide. July 21. Received cash for the maturity value of Note Receivable No. 7, a 90-day, 18% note: principal, $1000.00, plus interest, $45.00; total, $1045.00. Receipt No. 484. Cash Receipts Journal Date Account Title Jl 21 Notes Receivable Interest Income Doc Post No. R484 Ref. GENERAL DEBIT CREDIT 1000.00 45.00 Page ___ Accts Rec. Credit Sales Sales Tax Payable Credit Debit Credit Sales Dis. Debit Cash Debit 1045.00 Recording a Dishonored Note Receivable Dishonored Note – A note that is not paid when due. The notes receivable account should only show what will probably be collected. The amount of a dishonored note receivable should be removed from the notes receivable account. Recording a Dishonored Note Receivable The amount of the note plus interest income earned on the note is still owed by the customer. So, the total amount owed should be debited to the accounts receivable account in the general ledger. This amount should also be debited to the customer’s account in the accounts receivable ledger. May 15. Pam Carter dishonored Note Receivable No. 9, a 90day, 18% note, maturity value due today: principal, $400.00; interest, $18.00; total, $418.00. Memorandum No. 85. General Journal Date Account Title May 15 Accts Rec/ Pam Carter Notes Receivable Interest Income Doc. Post No. Ref. M85 Page ___ Debit Credit 4 1 8 00 4 0 0 00 1 8 00 Work Together p. 606 General Journal-this slide Cash Receipts Journal-next slide General Journal Date Feb Account Title 2 Notes Receivable Accts Rec/ Paul Gary 27 Accts Rec/ Kirk Adams Doc. Post No. Ref. NR17 Page ___ Debit 1 8 0 0 Credit 00 1 8 0 0 00 M25 4 1 8 00 Notes Receivable 4 0 0 00 Interest Income 1 8 00 Assignment Click the arrow to go to the next slide for the journal on the 18th. Cash Receipts Journal Date Account Title Fb 18 Notes Receivable Interest Income Doc Post No. Ref. 67 GENERAL DEBIT CREDIT Page ___ Accts Rec. Credit Sales Credit 500.00 Sales Tax Payable Debit Credit Sales Dis. Debit Cash Debit 515.00 15.00 Click on the arrow to go back to the general journal entry for the 27th. Assignment Do Application 23-3 and 23-4 by hand. Turn them into Mrs. Middleton. Do 23-5 Mastery Problem on the computer. Turn in all pages to Mrs. Middleton. Take Chapter 23 test. Move on to chapter 24.