either days or months. When the term of a note is stated in days, the due date is the
specified number of days after its issuance. To illustrate, the due date of a 90-day note
dated March 16 is June 14, as shown below.366 Chapter 8 Receivables
2 You may occasionally see references to non-interest-bearing notes receivable. Such notes are not widely
used and carry an assumed or implicit interest rate.Q.What is the due date
of a 120-day note
receivable dated
September 9?A.January 7 [21 days in
September (30 days 9
days)31 days in
October30 days in
November31 days in
December7 days in
January120 days]MARCH
16 - 31APRIL
1- 30MAY
1- 31JUNE
1-14DUE DATE OF 90-DAY NOTE
Total of 90 days
15 days
Mar. 16 Jun. 14
++30 days +31 days 14 days
The term of a note may be stated as a certain number of months after the issuance
date. In such cases, the due date is determined by counting the number of months from
the issuance date. For example, a three-month note dated June 5 would be due on
September 5. A two-month note dated July 31 would be due on September 30.
A note normally specifies that interest be paid for the period between the issuance
date and the due date.^2 Notes covering a period of time longer than one year normally
provide for interest to be paid annually, semiannually, quarterly, or monthly. When
the term of the note is less than one year, the interest is usually payable at the time the
note is paid.
The interest rate on notes is normally stated in terms of a year, regardless of the
actual period of time involved. Thus, the interest on $2,000 for one year at 12% is $240
(12%$2,000). The interest on $2,000 for 90 days at 12% is $60 ($2,000 12%90/360).
To simplify computations, we will use 360 days per year. In practice, companies such as
banks and mortgage companies use the exact number of days in a year, 365.
The amount that is due at the maturity or due date of a note receivable is its
maturity value. The maturity value of a note is the sum of the face amount and the
interest. For example, the maturity value of a $25,000, 9%, 120-day note receivable
is $25,750 [$25,000 ($25,0009%120/360)].Accounting for Notes Receivable
A customer may use a note to replace an account receivable. To illustrate, assume that
a company accepts a 30-day, 12% note dated November 21, 2008, in settlement of the
account of W. A. Bunn Co., which is past due and has a balance of $6,000. The com-
pany records the receipt of the note as follows:Q.What is the maturity
value of a $15,000,
90-day, 12% note?A.$15,450 [$15,000
($15,0000.12
90/360)]Nov. 21 Notes Receivable—W. A. Bunn Co. 6,000
Accounts Receivable—W. A. Bunn Co. 6,000SCF BS IS
—AcT —