Long-Term notes Receivable là gì

Rules on Long- & Short-Term Notes Receivable

In business accounting, notes receivable are promissory notes that represent an asset. These promissory notes are either short-term or long-term and should be recorded on the balance sheet differently. Notes receivable include principal and interest, and short-term and long-term notes receivable have the same interest calculation. However, on long-term notes receivable, unpaid interest can be carried over from year to year.

Overview

Customers sign promissory notes, which are recorded as notes receivable, in exchange for merchandise or when their account is past due. When a customer signs a promissory note for a past due account, the principal amount is recorded on the balance sheet by debiting accounts receivable and crediting notes receivable. When a customer signs a promissory note in exchange for merchandise, it is recorded on the balance sheet by crediting sales and debiting notes receivable.

Assets

Notes receivable are classified as long-term or short-term, depending on the duration. Notes receivable that are due more than one year after the date recorded on a balance sheet must be reported as long-term assets. Notes receivable that are due within one year of the date recorded on a balance sheet must be reported as current assets.

Interest

The same interest calculation formula is used for both long-term and short-term notes receivable. However, for long-term notes receivable, interest that remains unpaid is typically added to the principal amount and compounded for interest that's carried over from one year to the next. Adjusting entries for accumulated interest must be made on the date the accounting period ends.

Considerations

Interest can be compounded on long-term notes receivable that carry unpaid interest. For example, if a business holds a two-year, 10 percent, $5,000 note, the note accrues $500 over the first year. Under the same example, the total principal and interest for the first year equals $5,500 when compounded, and the total accrued interest for the second year when compounded equals $550.

Related Articles