Question

1. Why might a business prefer a note receivable to an account receivable, and how is it impacting the uncollectible account?

Answer 1

Note receivable: A note receivable is a written promise given by the purchaser to seller to pay a certain sum of money at a specified time. The purchaser makes a written promise in form of the note receivable and in terms of seller it is called as Notes receivable.

Accounts receivable: Accounts receivable are made on the basis of the general credit worthiness of the purchaser that is there is no acknowledgement by the purchaser of paying the debt.

So this is the reason that the businesses prefer notes receivable over an account receivable because in notes receivable the customer gives an acknowledgement of the debt and the specified period by which the debt shall be repaid where on the other hand accounts receivable do not give any such acknowledgement.

They both impact the uncollectible accounts because in case of notes receivable there is a specified time by which the debt shall be recovered and if the debt is not recovered within the time the amount is transferred to uncollectible accounts. Whereas in case of accounts receivable there is no such specified period so the uncollectible accounts do not increase until it is confirmed by the customer that he will not be able to pay the debt.

Thus every business prefer note receivable over account receivable and they both have the respective effect on the uncollectible accounts.

In case of any doubt please comment below.

Thank you. Please upvote it.......