Question

1. What is the difference between accounts recipe and notes receivable?

13. When using allowance method, how are accounts receivable shown on the balance sheet?

20. What is the formula to compute interest on a note receivable?

Answer 1

1. Accounts receivable:

Accounts Receivables are the debtors who owed to the business organisations for goods purchased or services rendered. These receivables exists when they buy goods/services on credit from business organisations.

Notes receivables:

Notes receivables are the money due from the person's who takes the loan based on promissory notes. In this a promissory note is prepared creating obligation on the maker(borrower) to repay the amount(principle along with stated interest) to lender(payee) . Thus lender will show such dues in balance sheet as Notes receivables under Asssets.

13. Allowance Method:

Allowance method is a method of recording anticipated losses of amount due from customers. In this method estimated amount of anticipated losses are recorded by passing an adjusting journal entry effecting(reducing) accounts receivables account.

It is shown on the balance sheet assets side under Accounts receivable. Thus net realizable value is reflected on assets side by reducing allowance from Accounts receivable.

20. Interest on Notes receivable:

  Interest= Principle x rate of interest x time period

Eg. Priciple = 10000

Rate of interest per annum, = 5%

Period = 6 months

Interest = 10000 x 5% x 6/12

=250