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.
