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The term receivables include all money claims against

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The term receivables include all money claims against people, organizations and otherdebtors.Receivables represent expected future cash inflows for the creditor (to thelending party).Receivables are acquired by a business enterprise in various kinds of193
transactions, the most common being the sale of merchandise (goods) or services on acredit basis. For instance, if a shop near your home makes a sale of dry cell without beingreceiving the money immediately (to be received at a later date), it means that areceivable is created or acquired by the shop owner. The claim against the debtor (buyerof dry cell on credit) represents a receivable to the shop owner (seller). The shop ownerexpects this receivable to be collected in the near future.Receivables can be classified into two groups, viz, (i) trade receivables and (ii) non-tradereceivables. The trade receivables are those receivables which result from the sale ofproducts or services to different groups of customers (individuals, firms, governmentorganizations, etc). On the other hand, the non-trade receivables originated from otherevents and transactions (other than sale of products and services) and include amongothers; advances to employees, accrued receivables, and deposits with utilities. To clarifythe concept further, suppose you apply for a loan from your employer to borrow yourannual salary in advance so that you agreed to repay back within 2 years time oninstallments. This transaction between you and your employer creates a non-tradereceivable to your employer.7.1 Promissory Notes ReceivablesCredit may be granted on open account or on the basis of a formal instrument of credit,such as a promissory note. A promissory note is a written promise to pay a sum of moneyon demand or at a definite time. A Promissory note is frequently referred to as a note, awritten promise to pay a sum of money on demand or at a definite time.A Promissory noteis an unconditional promise to pay a definite sum of money ondemand or at a future date. Notes are usually used for credit periods of more than 60days, as in the sale of equipment on the installment plan, and for transactions of relativelylarge Birr amounts. For example, in Ethiopia most importers of electronics like Garad,Equatorial Business Group, Glorious, etc and other enterprises like Omedad, DeluxFurniture, and 3F, and other firms used a promissory note while making credit sales onthe installment plan.194
Notes may also be used in settlement of an open account and as a means of borrowing orlending money.Check Your Progress: Exercise 7.11. Compared to other receivables, specially compared to Accounts Receivable, what doyou think are some of the benefits to a creditor of a claim in the form of a notesreceivable?______________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________Advantages of Notes Receivable to the CreditorFrom the point of view of the creditor, a claim evidenced by a note has an advantage overa claim in the form of an accounts receivable, in that:-(1) By signing a note, the debtor acknowledges the debt and agrees to pay itaccording to the terms given. Hence, the note representsa stronger legal claimthan accounts receivable for the creditor.

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