What is notes receivable?

Definition of Notes Receivable

Notes receivable is an asset of a company, bank or other organization that holds a written promissory note from another party. (The other party will have a note payable.)

The principal part of a note receivable that is expected to be collected within one year of the balance sheet date is reported in the current asset section of the lender's balance sheet . The remaining principal of the note receivable is reported in the noncurrent asset section entitled Investments .

Examples of Notes Receivable

A company lends one of its important suppliers $10,000 and the supplier gives the company a written promissory note to repay the amount in six months along with interest at 8% per year. The company will debit its current asset account Notes Receivable for the principal amount of $10,000. The credit of $10,000 will be to Cash.

If a company borrows $100,000 from its bank and signs a promissory note to pay 6% interest quarterly and the principal amount in 9 months, the bank will debit its current asset account Notes Receivable and will credit Cash or Customers' Deposits for the principal amount of $100,000.

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