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ACTBAS1 Reviewer 3 - PROMISSORY NOTES Payee receiver of the...

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PROMISSORY NOTES Payee – receiver of the note. Maker – issuer of the note. Format: 1) Note arising from goods/services acquired. (Payee) Notes Receivable xxx *Service Income xxx Received ……. note. (Maker) *Repairs and Maintenance xxx Notes Payable xxx Issued….note for…. * depends on the transaction. 2) Note to extend an account. (Payee) Notes Receivable xxx Accounts Receivable xxx Received…. (Maker) Accounts Payable xxx Notes Payable xxx Issued…. 3) Loan transaction (borrowing/lending money) (Payee) Notes Receivable xxx Cash xxx Received… (Maker) Cash xxx Notes Payable xxx Issued… ACCOUNTING FOR PROMISSORY NOTES To solve for the note’s total interest/interest on due date : Recall: I = Principal x Rate x Term/ 360 since rates are usually on annual basis. Example: Compute interest of a 60-day 6% note, P30, 000 I = P30, 000 x 0.06 x 60/360 = P300 To solve for maturity value: Maturity Value = Principal + Interest A) Note is honored/paid on maturity date. Format: (Payee) Cash xxx Notes Receivable xxx Interest Income xxx Collected note due today. (Maker) Notes Payable xxx Interest Expense xxx Cash xxx Paid note due today.
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B) Note is dishonored. Format: (Payee) Accounts Receivable xxx Notes Receivable xxx Interest Income xxx To record dishonored note (Maker) Notes Payable xxx Interest Expense xxx Accounts Payable xxx To record dishonored note DISCOUNTING OF NOTES With recourse
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