Misnomer because All notes

implicitly contain interest.

Chapter 12: NOTES RECEIVABLE Interest being included in the

face amount, rather than
Notes Receivable being stated as separate rate
Claims supported by formal promises to
pay usually in the form of notes
Represents only claims arising from sale Interest Non-Interest bearing
of merchandise or service in the bearing
ordinary course of business Initial Face Value PV (discounted value of
Notes received from officers /PV upon the Future cash flow using
Designated
separately Employees issuance the EIR)
Shareholders and affiliates

Negotiable promissory note

Unconditional promise in writing made Subsequent Amortized Amortized cost is the
by one person to another, signed by the cost using PV+amortization of the
maker, engaging to pay on demand or EIM discount
at fixed determinable future time a sum
certain in money to order or to bearer FV-unamortized unearned
int income
Promissory note
Written contract in which one person,
known as the maker, promises to pay Amortized Cost
another person, known as the payee, a Amount at which the note receivable is
definite sum of money measured initially
Note may be payable on demand or at a 1. Minus Principally repayment
definite future date 2. Plus/ Minus cumulative
amortization of an difference
Dishonored Notes between the initial carrying amount
Promissory matures and is not paid and the principal maturity amount
Dishonored receivable shall be removed 3. Minus reduction for impairment or
form NR account and transferred to AR uncollectibility

Initial Measurement of NR
1. PV sum of all future cash flows
discounted using the prevailing market
rate of interest(Effective interest rate)
for similar notes

2. Short term @ Face value

Short term NR are not
discounted because the effect
of discounting is usually not
material