Discounting of Notes
ACTG101 – HANDOUTS FINALS – TRANSACTIONS INCLUDING NOTES
Definition of Terms
* Notes receivable – claims supported by formal promises to pay usually in the form of notes
* Negotiable promissory notes – an unconditional promise in writing made by one person to another, signed by the maker, engaging to pay on demand or at a fixed determinable future time a sum certain in money or to bearer.
* Dishonored notes – when promissory note matures and is not paid. This should be removed from the notes receivable account and transferred to accounts receivable at an amount including, if any, interest and other charges.
* Discounting of Notes – the payee may obtain cash before maturity date at a bank or other financing company. The payee then becomes the endorser; the bank or other financing company becomes the endorsee.
Sample Promissory Note
Elements of the Notes
* Maker – JaeyRa Jo
* Payee – Charmcharm
* Principal (Face) – P100,000. It is the amount appearing on the face of the note. It represents the amount borrowed
* Interest Rate – 12%. Annual interest rate of interest appearing on the face of the note which will be the basis of interest charges to the maker. It is usually stated at an annual rate
* Interest - amount of interest for the full term of the note
Interest (I) = Principal x Rate x Time (P x R x T) Interest (I) = P100,000 x 12% x 90/360 = P3,000
* Term – 90 days. It is the period of time during which interest should be computed. It extends from the issue date to the maturity date of the note
* Issue Date – May 1, 2009. It is the date when the note was signed and issued
* Maturity Date – July 30, 2009. It is the date when maturity value should be paid and is computed as follows:
Days remaining in May (31 – 1) 30 Days in June 30 Days for July 30 (maturity date) Term of Note 90
* Maturity Value – amount due on the note at the date of maturity
Maturity Value (MV) = Principal plus
Definition of Terms
* Notes receivable – claims supported by formal promises to pay usually in the form of notes
* Negotiable promissory notes – an unconditional promise in writing made by one person to another, signed by the maker, engaging to pay on demand or at a fixed determinable future time a sum certain in money or to bearer.
* Dishonored notes – when promissory note matures and is not paid. This should be removed from the notes receivable account and transferred to accounts receivable at an amount including, if any, interest and other charges.
* Discounting of Notes – the payee may obtain cash before maturity date at a bank or other financing company. The payee then becomes the endorser; the bank or other financing company becomes the endorsee.
Sample Promissory Note
Elements of the Notes
* Maker – JaeyRa Jo
* Payee – Charmcharm
* Principal (Face) – P100,000. It is the amount appearing on the face of the note. It represents the amount borrowed
* Interest Rate – 12%. Annual interest rate of interest appearing on the face of the note which will be the basis of interest charges to the maker. It is usually stated at an annual rate
* Interest - amount of interest for the full term of the note
Interest (I) = Principal x Rate x Time (P x R x T) Interest (I) = P100,000 x 12% x 90/360 = P3,000
* Term – 90 days. It is the period of time during which interest should be computed. It extends from the issue date to the maturity date of the note
* Issue Date – May 1, 2009. It is the date when the note was signed and issued
* Maturity Date – July 30, 2009. It is the date when maturity value should be paid and is computed as follows:
Days remaining in May (31 – 1) 30 Days in June 30 Days for July 30 (maturity date) Term of Note 90
* Maturity Value – amount due on the note at the date of maturity
Maturity Value (MV) = Principal plus