# Notes receivable

Q19. Notes receivable
On December 1, 20×1, Entity A received a promissory note as the collection of accounts receivable from a customer.
(a) Face amount of the note: $80,000 (b) Due date of the note: May 31, 20×2 (c) Annual interest rate = 12% What are the journal entries to be prepared on December 1 and 31, 20×1? A19. The face amount of a promissory note receivable is recorded on the debit side. (1) December 1, 20×1: to record the receipt of a promissory note  Debit Credit Notes receivable 80,000 Accounts receivable 80,000 [Note] 1. Increase in notes receivable (asset): debit 2. Decrease in accounts receivable (asset): credit (2) December 31, 20×1: to record accrued interest revenue for the month of December 20×1  Debit Credit Interest receivable 800 Interest revenue 800 [Note] 1. Increase in interest receivable (asset): debit 2. Increase in interest revenue (revenue): credit 3. Annual interest =$80,000 x 12% = $9,600 4. Monthly interest = annual interest x 1/12 =$9,600 x 1/12 = $800 (3) May 31, 20×2: to record the receipt of the face amount of the note receivable  Debit Credit Cash 80,000 Notes receivable 80,000 [Note] 1. Increase in cash (asset): debit 2. Decrease in notes receivable (asset): credit (4) May 31, 20×2: to record the receipt of interest on the note receivable  Debit Credit Cash 4,800 Interest receivable 800 Interest revenue 4,000 [Note] 1. Increase in cash (asset): debit 2. Decrease in interest receivable (asset): credit 3. Increase in interest revenue (revenue): credit 4. Interest revenue recognized in 20×2 = monthly interest x 5 months =$800 x 5 = \$4,000