LESSON 20-3
Notes Receivable
Obj. 5.01 – Apply procedures to prepare journal
entries for notes payable & notes receivable
transactions
Original created by M.C. McLaughlin, Thomson/South-Western
Modified by Deborah L. Burns, Johnston County Schools, West Johnston High School
CENTURY 21 ACCOUNTING © Thomson/South-Western
2
NOTES RECEIVABLE
 A customer who is unable to pay an account on the due
date may request additional time
 The business should require the customer to sign a note
 The promissory note is a written confirmation of the debt,
which provides evidence in case legal action is required to
collect
 Promissory notes that a business accepts from customers
are called notes receivable
Notes receivable are usually paid
within on year and are classified as
current assets
CENTURY 21 ACCOUNTING © Thomson/South-Western
LESSON 20-3
3
ACCEPTING A NOTE RECEIVABLE FROM
page 598
A CUSTOMER
April 14. Accepted a 90-day, 8% note from Martin Sterling for an
extension of time on his account, $3,000.00. Note Receivable No. 9.
1
2
•When a customer signs a note, the
principal amount is debited to an
2. Credit to Accounts Receivable
asset account titled Notes Receivable
•One asset is replaced by another asset
1. Debit to Notes Receivable
CENTURY 21 ACCOUNTING © Thomson/South-Western
LESSON 20-3
4
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
 The interest earned on money loaned is called interest
income
 The interest earned on a note receivable is credited to a
revenue account titled Interest Income
 Interest income is investment revenue and is listed in a
classification titled Other Revenue
CENTURY 21 ACCOUNTING © Thomson/South-Western
LESSON 20-3
5
COLLECTING PRINCIPAL AND INTEREST
page 599
ON A NOTE RECEIVABLE
July 13. Received cash for the maturity value of Note Receivable
No. 9, a 90-day, 8% note: principal, $3,000.00, plus interest,
$60.00; total, $3,060.00. Receipt No. 562.
2
1
3
5
1.
2.
3.
4.
Write the date.
Write the account title.
Write the receipt number.
Write the principal amount.
CENTURY 21 ACCOUNTING © Thomson/South-Western
4
6
7
5. On the next line, write the
account title.
6. Calculate and write the interest
income amount.
7. Write the maturity value.
LESSON 20-3
6
RECORDING A DISHONORED NOTE
RECEIVABLE
A note that is not paid when due is called a dishonored
note
The amount of the dishonored note receivable should be
removed from the notes receivable account
The amount of the note plus interest income earned on
the note is still owed by the customer and should be
debited to the accounts receivable account
The dishonored note is not written off until all collection
actions have been completed
One asset account, Notes Receivable, is replaced with
another asset account, Accounts Receivable
CENTURY 21 ACCOUNTING © Thomson/South-Western
LESSON 20-3
7
RECORDING A DISHONORED NOTE
RECEIVABLE
page 600
May 6. Jill Davis dishonored Note Receivable No. 12, a 90-day, 8%
note, maturity value due today: principal, $600.00; interest, $12.00;
total, $612.00. Memorandum No. 92.
1
2
3
1. Debit to Accounts Receivable
2. Credit to Notes Receivable
3. Credit to Interest Income
CENTURY 21 ACCOUNTING © Thomson/South-Western
LESSON 20-3
8
TERMS REVIEW
page 602
 notes receivable
 interest income
 dishonored note
CENTURY 21 ACCOUNTING © Thomson/South-Western
LESSON 20-3