Question

Write a narrative which includes a credit sale, a conversion to a note receivable, the dishonor of the note and subsequent delayed payment. Then show the T accounts derived from the narratives. Create your own simple numbers.

Answer 1

ABC company sold merchandise for $100,000 to XYZ inc under terms n/30 on April1. As the custmoer was unable to pay the amount on the due date, on May 1, ABC company accepted a 3-month note receivable for $100,000 with an interest of 5% p.a.

On the due date, the note was dishonoured. XYZ inc . settled the note along with the interest for the delayed payment on Sept.1.

the following will be the accounting entries.

Date	Account Title	Debit	Credit
April.1	Accounts Receivable XYZ Inc	100000
	Sales		100000
	(Sale of merchandise to XYZ inc.)
May.1	Note Receivable	100000
	Accounts Receivable XYZ Inc		100000
	(Acceptance of note for the balance due)
Aug.1	Accounts Receivable XYZ Inc	101250
	Interest Revenue		1250
	Note Receivable		100000
	(Dishonour of the note receivable)
Sept.1	Cash	101667
	Accounts Receivable XYZ Inc		101250
	Interest Revenue		417
	(Settlement of the account by XYZ alongwith
	interest on the delayed payment)

Accounts Receivable					Sales
Date	Debit	Credit	Balance		Date	Debit	Credit	Balance
April.1	100000		100000		April.1		100000
May.1		100000	0
Aug.	101250		101250
Sept.1		101250	0
Note Receivable					Interest Receivable
Date	Debit	Credit	Balance		Date	Debit	Credit	Balance
May.1	100000		100000
Aug.1		100000	0
Interest Revenue					Cash
Date	Debit	Credit	Balance		Date	Debit	Credit	Balance
Aug.1		1250	1250		Sept.1	101667
Sept.1		417	1667