Example #1

On June 17, 199A, Ames sold $5,000 worth of merchandise to Bates (N/30). The cost of the
goods sold was $3,000.

06/17/9A A/R-Bates 5,000

Sales 5,000

Cost of Merchandise Sold 3,000

Merchandise Inventory 3,000

On July 17, 199A Bates requested a 90 day extension of the credit period. Ames granted the
extension, but required bates to sign a 90 day 10% promissory note.

07/17/9A N/R-Bates 5,000

A/R-Bates 5,000

Calculate Interest: Prin. X Rate X Time = Interest

5,000 X 10% X 90/360= 125

Calculate Maturity Value: Prin. + Int. = M.V.

5,000 + 125 = 5,125

Due Date: Term of Note 90 days

# days in month of note (July) 31
- date of note 17
# days of life in July 14
+ # days in August 31
+ # days in September 30 75
Due on October 15

The note was honored by Bates - record the collection of the note on the due date

10/15/9A Cash 5,125

N/R-Bates 5,000
Interest Revenue 125

The note was dishonored by Bates - record the appropriate entry on the due date

10/15/9A A/R-Bates 5,125

N/R-Bates 5,000
Interest Revenue 125

If the amount due was expected to be uncollectible

10/15/9A Allowance for Doubtful Accounts 5,000

 N/R-Bates 5,000
Example #2

On March 11, 199A, Smith sold $9,000 worth of merchandise to Jones (N/30). The cost of the
goods sold was $8,000. Jones had no established credit, Smith required that Jones sign a
1 month, 10% note.

03/11/9A N/R-Jones 9,000

Sales 9,000

Cost of Merchandise Sold 8,000

Merchandise Inventory 8,000

Calculate Interest: Prin. X Rate X Time = Interest

9,000 X 10% X 1/12 = 75

Calculate Maturity Value: Prin. + Int. = M.V.

9,000 + 75 = 9,075

Due Date: April 11 (one month after March 11)

The note was honored by Jones - record the collection of the note on the due date

04/11/9A Cash 9,075

N/R-Jones 9,000
Interest Revenue 75

The note was dishonored by Bates - record the appropriate entry on the due date

04/11/9A A/R-Jones 9,075

N/R-Jones 9,000
Interest Revenue 75

If the amount due was expected to be uncollectible

04/11/9A Allowance for Doubtful Accounts 9,000

N/R-Jones 9,000