To know what are notes receivable and how is it recognized in the

accounts
To determine how notes receivable are valued
OBJECTIVES
To be able to compute using the effective rate method
 These are claims supported by formal
NOTES
promises to pay usually in the form of
RECEIVABLE
notes.
 May be payable on demand or at a
definite future date.
NOTES
RECEIVABLE Represents only claims arising from sale
of merchandise or service in the ordinary
course of business.
 A promissory note that has matured but
is not yet paid
DISHONORED
NOTES Accounts receivable xx
Notes receivable xx
Interest income xx
INITIAL Measured initially at PRESENT
MEASUREMENT VALUE
 Short-term notes FACE VALUE

INITIAL Long-term notes:

MEASUREMENT
Interest-bearing FACE VALUE
Non-interest bearing PRESENT VALUE
 Long-term notes receivable shall be
SUBSEQUENT measured at AMORTIZED COST
MEASUREMENT using the effective interest rate
method.
 Amortized cost =

Amount at Cumulative Reduction for

Principal amortization
SUBSEQUENT initial
repayment of any
impairment or
uncollectibility
measurement
MEASUREMENT difference
bet. initial
carrying amt
& principal
maturity amt
 For NON-INTEREST BEARING NOTES:

SUBSEQUENT
MEASUREMENT Amortized cost = Present + Amortization
value of discount
Illustration 1
Interest
bearing note
Illustration 1
Interest
bearing note
Illustration 1
Interest
bearing note
Illustration 1
Interest
bearing note
Illustration 2
Non-interest
bearing note
Illustration 2
Non-interest
bearing note
Illustration 2
Non-interest
bearing note
Illustration 2
Non-interest
bearing note
Illustration 2
Non-interest
bearing note
Illustration 3
Non-interest
bearing note
Illustration 3
Non-interest
bearing note
Illustration 3
Non-interest
bearing note
Illustration 3
Non-interest
bearing note
Illustration 4
Non-interest
bearing note
Illustration 4
Non-interest
bearing note
Illustration 4
Non-interest
bearing note
Illustration 4
Non-interest
bearing note
Illustration 4
Non-interest
bearing note
END