Accounting Chapter 26 - Notes Payable and Receivable

Debit- Notes Payable, Interest Expense Credit- Cash in bank (notes payable + interest expense)

paying off a interest bearing notes payable

Debit- Notes Payable, Discount on Notes Payable Credit- Cash in bank, Interest Expense

payment of non interest bearing notes payable

the note matures and the interest expense has been incurred.

the bank discount is not recorded in an expense account until

interest is

the fee charged to the issuer of a promissory note for the use of money.

Debit- Notes receivable Credit- accounts receivable

when converting accounts receivable to notes receivable

Debit - Cash in bank Credit- Notes Payable

when the business borrows money from the bank and issues a interest bearing note -

True

Both term and issue dates are needed to determine a note's maturity date.

deduction from notes payable

Businesses report the Discount on Notes Payable account on the balance sheet as a

False

Borrowing periods of less than 1 year cannot be used in calculating interest.

False

A business may not issue a note payable to borrow money from a bank

Discount on Notes Payable

A contra liability account representing future interest charges that have already been paid is the ___________ account.

False

A non-interest-bearing not payable is the same as an interest-free note.

True

A note receivable is an asset to the business receiving the note.

interest-bearing note payable

A note that requires the face value plus interest to be paid on the maturity date is called a(n)__________

True

A person or business may issue a promissory note to obtain a loan from a bank.

Note Receivable

A promissory note that a business accepts from a customer who need additional time to pay a debt is called a(n) ______

Note Payable

A(n) ______ is a promissory note issued to a creditor or by a business to borrow money from a bank.

promissory note

A(n) ____________ is a written promise to pay a business or a person a certain amount of money at a specific time

nonoperating expense. (This means that the expense does not result from the normal operations of the business).

An other expense is a

False

Discount on Note Payable is a liability account.

the face value.

For a non-interest bearing note payable, the maturity value is the same as

True

Interest = Principal x Interest Rate x Time is the equation for calculating interest on a promissory note.

True

Interest expense for a non-interest bearing note is recorded on the maturity date.

True

Interest income is an example of other revenue and is reported separately on the income statement.

True

Interest rates are usually stated on an annual basis.

Debit Cash & Discount on Notes Payable, credit Notes Pay

Issued a non-interest bearing note to the bank for cash

Debit Cash, credit Notes Payable

Issued an interest-bearing note payable to the bank for cash

income statement, as an increase to operating income.

Other revenue appears in a separate section on the

nonoperating revenue accounts, track revenue that a business receives from activities other than its normal operations.

Other revenue, also known as

debts that become due after one year.

Long-term liabilities are

True

Notes Payable is credited when a company issues a promise to repay a debt.

False

Notes Receivable is classified as a contra asset account.

True

On interest bearing notes, the face value and the principal are the same.

income statement, as deductions from operating income.

Other expenses appear in a separate section on the

documents that are evidence of credit granted or received.

Promissory notes are formal ...

paying for products and services, and lending and borrowing money.

Promissory notes are used in many transactions, including

Debit Cash, credit Notes Receivable & Interest Income

Received a check for the payment of the interest-bearing note from the customer.

Debit Notes Receivable, credit A/R

Received an interest bearing note from a customer for payment on account

Bank Discount

The interest deducted in advance from a non-interest-bearing note payable is called the _________

False

The interest on a 12.5%, $3,500 promissory note for 2 years is $437.50.

deduction from notes payable

The Discount on Notes Payable account is reported on the balance sheet as a

False

The Interest Expense account is increased by a credit.

Principal

The ____ is the date on which the note must be paid. - maturity date, The amount being borrowed is the __________ of the note.

Interest Rate

The _______ is the % of the principal that is charged for the use of the money.

Term

The _________ is the amount of time that the borrower has to repay a promissory note.

Maturity Value

The __________ of a note is the principal plus the interest.

Maker

The ______________ of the note is the person or business promising to repay the principal and interest.

True

The account Discount on Notes Payable has a normal debit balance.

Principal/Face Value

The amount being borrowed when a promissory note is issued or received is called the _____________.

Proceeds

The amount of cash actually received by the borrower of a non-interest-bearing note payable is called the _________.

Interest Rate

The amount of interest to be charged stated as a percentage of the principal is called the ________.

interest expense on the note.

The bank discount is the future

Issue Date

The date on which a note is written is called its

False

The due date for a 30-day note dated April 10 is May 9

True

The maturity value of a non-interest-bearing note payable is the same as its face value.

the principal (face value) plus the interest.

The maturity value of an interest-bearing note equals the

promissory note (The note replaces the account receivable.)

When a customer needs additional time to pay an account receivable, he or she may be asked to sign a

False

When a non-interest-bearing note payable is paid, the interest charge is transferred from the Notes Payable account to the Interest Expense account.

True

When a note is signed, the maker is agreeing to repay the note within a certain period of time.

long term liability

When the due date of a note extends beyond one year, the note is classified as a

Debit Notes Payable & Interest Exp, credit cash

Wrote a check to the bank in payment of the interest-bearing note

Debit Notes Payable & Interest Exp, credit Cash & Discount on Notes Pay

Wrote a check to the bank in payment of the non-interest-bearing note

promissory note issued to a creditor.

a note payable is a

interest rates are usually stated on an

annual basis

Face Value x Discount Rate x Time

bank discount =

notes payable - discounts on notes payable

book value of notes payable=

principal x interest rate x time

calculating bank discount for non-interest bearing notes payable

notes payable - discounts on notes payable

calculating book value of notes payable

face value - bank discount

calculating proceeds

paid on the maturity date of the note.

for interest-bearing notes, interest is paid

Principal x interest rate x time

how to find the interest of a interest bearing notes payable

other expense other revenue

interest expense is classified as ____ _____ interest income is classified as ___ ____

Principal x Interest Rate x Time

interest=

Debit - Cash in bank (notes payable amount - discount) Debit - discount on notes payable Credit- Notes payable

issuing a non-interest bearing notes payable