Suppose a company accepts a No

Suppose a company accepts a Note Receivable to settle a past duebalance in Accounts Receivable. How would the company record thistransaction? Provide an example and related journal entry.



When a company received a notes Receivable in settlementof pas due, a new asset is created for notes receivable and pas duewhich was shown in balance sheet as an asset is eliminated byCrediting accounts receivables and Debiting notes receivable. Thenet effect on balance sheet is zero because the amount of assetincrease is equal to amount of asset decrease. Notes Received aregenerally accepted with interest because lender is delaying hispayments so to compensate interest is also paid at the time ofmaturity.

The duration of the note can be 3 months, 6 months 1year etc. It basically depends upon agreement between 2persons.

Example is given below

Suppose a customer has a balance of $100,000 and hesettles with accepting a 3 month’s note at 12% Per Annum Interestfor same amount. Journal entry will be as follows.


General Journal



Jan 1 2017

Notes receivable

$ 100,000.00

            Accounts receivables

$   100,000.00

(Accepted notes receivable from customer)

Mar 31 2017


$ 103,000.00

            Notes Receivable

$   100,000.00

            Interest revenue

$        3,000.00

(Note redeemed with interest @12% per annum)

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