Discounting Notes Receivable

Discounting Notes Receivable - is an obligation to pay an...

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Discounting Notes Receivable Just as accounts receivable can be factored, notes can be converted into cash by  selling them to a financial institution at a discount. Notes are usually sold (discounted)  with recourse, which means the company discounting the note agrees to pay the  financial institution if the maker dishonors the note. When notes receivable are sold with  recourse, the company has a contingent liability that must be disclosed ni the notes  accompanying the financial statements.  A contingent liability
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Unformatted text preview: is an obligation to pay an amount in the future, if and when an uncertain event occurs. The discount rate is the annual percentage rate that the financial institution charges for buying a note and collecting the debt. The discount period is the length of time between a note's sale and its due date. The discount , which is the fee that the financial institution charges, is found by multiplying the note's maturity value by the discount rate and the discount period....
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