Accounting Interview Questions & Answers (Basic)

à 24 avril

Interest expense on an interest-bearing note is. On January 1, 2010, Keisler Company, a calendar-year company, issued $400,000 of notes payable, of which $100,000 is due on January 1 for each of the next four years. A) subscriptons receivable= 600,000; subscriptions revenue= 600,000. How should the sisters account for the cash received as reservations are made?Study Notes/Sales Receivables flashcards from Rubaiyat Abedin's class online, or in Brainscape's iPhone or What amount of accrued interest receivable should Tigg include in its December 31 Total interest revenue is the amount received over the term of the note less the present value of the...Non interest bearing notes payable are issued by a business for cash, and are liabilities representing amounts owed by the business to a third party. As the name implies, a non interest bearing note or zero interest note, does not have an interest rate and does not charge periodic interest payments...b. credit Notes Receivable for the maturity value of the note. c. debit Notes Receivable for the face value of the note. d. credit Notes Related questions. The maturity value of a $ 40,000 , 9 % , 40-day note receivable dated July... Under the allowance method , when a year-end adjustment is made for...The discount on notes receivable will be amortized to interest revenue over the next three years using the effective interest method. Because the issuer must impute interest on a non-interest bearing note, he is basically issuing a discounted note. NORMALLY, when a note is issued at a discount, the...

Notes/Sales Receivables Flashcards by Rubaiyat Abedin | Brainscape

Whenever there is interest quoted on note receivables then, only the face value of such note is debited as This is because of the prudent principle that all expenses are recorded when they are to occur, but revenues are recorded only when there is 100% assurance that it will be collected.An account receivable and a note receivable both refer to money that is owed to you/your company by another person/company. Both can be current assets or long term assets. However, the difference in the two is:A Note Receivable has some form of contract signed, [i.e. promissory note etc...If the amount of notes receivable is significant, a company should establish a separate allowance for When a note's maker pays according to the terms specified on the note, the note is said to be No interest revenue is recognized because none will ever be received. If interest on a bad debt had...Notes receivable usually arise when accounts receivable are converted to notes receivable when the customer wants to extend the date of payment and in return agrees to pay interest. Such agreement is recorded formally as a promissory note. Notes receivable also arise when a business...

Non Interest Bearing Note | Double Entry Bookkeeping

A note receivable on which interest rate is not specified but the total interest amount is deducted on advance is called non-interest bearing notes receivable. Interest-bearing notes receivable. When the due date finished before the closing date. Example 1: A Company lent Rs.The accounting for notes receivable is simple. When a note is received from a receivable, it is recorded with the face value of When the face value and interest thereon is collected, the following entry is made: Example: On October 1, 2014, the Western company received a 120 day, 5% note...Definition: A noninterest-bearing note is a note or bond with no stated interest rate on its face. As you can see, the note actually pays interest over the course of its life. The interest is just built into the amount borrowed. The cool thing about noninterest-bearing notes is that you can easily calculate the...When a company receives an interest-bearing note receivable, it will. debit Notes Receivable for the face value of the note. Pane Company receives a $3000, 3-month, 6% promissory note from Dag Company in settlement of an open accounts receivable.RECOGNIZING NOTES RECEIVABLE (Study Objective 6). Wilma Company receives a $1,000, 2-month, 12% promissory note from Brent Company to settle · A note is honored when it is paid in full at its maturity date. · For an interest-bearing note, the amount due at maturity is the face value of the.

Home Accounting Receivables Notes Receivable

Notes receivable are financial assets of a business which arise when other parties make a documented promise to pay a certain sum on demand or on a specific date. Notes receivable are different from accounts receivable because they are formally documented and signed by the promising party, known as the maker of the note, to the party who receives the payment, known as the payee.

Since notes receivable have a longer duration than accounts receivable, they usually require the maker to pay interest in addition to the principle, at the maturity of the note. Interest receivable is recognized on the balance sheet in addition to the face value of notes receivable.

Notes receivable usually arise when accounts receivable are converted to notes receivable when the customer wants to extend the date of payment and in return agrees to pay interest. Such agreement is recorded formally as a promissory note. Notes receivable also arise when a business lends an amount to another party against a documented promise to pay it back.

The amount promised on a note may be receivable in a single sum or in multiple installments. Notes receivable appear in balance sheet, either as a current asset or a non-current asset. The portion that is due within 12 months is recorded as current asset and the rest is recognized as a non-current asset.

The accounting treatment of interest that is accrued but remains unpaid up to balance sheet date, depends on whether the interest is compound or simple. If it is a compound interest, the accrued interest that remains unpaid is added to the principal of note receivable and carried over to the next accounting period.

Journal Entries

When accounts receivable are converted to notes receivable, the following journal entry is required:

Notes receivableABCAccounts receivableABC

When a business sells goods/services or lends money to other parties against promissory notes, it is recognized as follows:

Notes receivableDEFCash or Sales (either an advance or a sale)DEF

Interest accrued on a note receivable is calculated using the following formula:

Interest Accrued = Principal Amount × Interest Rate × Time Periods

If a note carries simple interest, it is journalized as:

Interest receivableGHIInterest incomeGHI

If a note is carried at compound interest, the accrued interest is debited to the notes receivable account itself because the future period interest is calculated based on the principal amount of note plus any unpaid interest:

Notes receivableJKLInterest incomeJKL

When the principal amount and interest accrued on a note is received, it is recorded as follows:

Cash/BankMN+ONotes receivableMNInterest receivable/interest incomeO

Cash or bank is debited by the sum of principal amount and interest not yet received. Interest receivable account is credited where the note carries simple interest. Interest income account is credited when the interest received has not been recognized already. No interest receivable account is used when the note carries compound interest, because in that case the carrying amount of notes receivable is increased by debiting it, as seen above.

Example

On 1 May 20X4, PQR, Inc. lent

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million to ABC, LLC for 2 years against a documented promissory note. DEF, Inc., another client of PQR, Inc. issued a 2-month promissory note against their outstanding balance of million on 1 November 20X4. Note receivable from ABC LLC carried 5% simple interest rate payable annually while the one from DEF Inc. carried 8% interest compounded monthly. PQR financial year ends on 31 December.

On 1 May 20X4, PQR needs to record the following journal entry:

Notes receivable

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millionCash

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million

Note receivable form DEF is recognized as follows, on 1 November 20X4:

Notes receivable millionAccounts receivable million

Note receivable from DEF carries interest compounded monthly, so at the end of November, interest is accrued as follows:

Notes receivable ( ,000,000 × 8% × 1/12)20,000Interest income20,000

At the end of December 20X4, interest is accrued on both ABC and DEF notes receivable:

Notes receivable ( ,020,000 × 8% × 1/12)20,133Interest receivable (

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,000,000 × 5% × 8/12)66,667Interest income86,800

The amount debited to notes receivable represent the interest earned in month of December on the carrying amount at the end of November because the note carries compound interest. The amount debited to interest receivable represent simple interest earned on note receivable from ABC.

At the end of December when DEF pays off the notes receivable, the following journal entry is needed:

Bank ( ,000,000+,000+,133)3,040,133Notes receivable3,040,133

As at 31 December, the note receivable from ABC is classified as a non-current asset because it is due after 12 months from 31 December. Interest receivable on the note as a 31 December is reported as current asset because it is to be received at the end of April 20X5.

by Irfanullah Jan, ACCA and last modified on Oct 24, 2020