Note receivable is quite different from account receivable accounting. So, first of all you should keep in mind the treatment for notes receivable in accounting is little bit different.
Difference between Account receivable vs Notes Receivable
in notes receivable, there is a written proof or promise to pay, on the other hand account receivable is just collected over the basis of sales invoices.
interest in charged over the outstanding amount receivable while there is no interest is charged in account receivable.
Journal Entries
| Particulars | Debit $ | Credit $ |
| In order to record issue of note, the following accounting journal entry would be passed: | ||
| Notes receivable | xxxxx | |
| Cash | xxxxx | |
| In order to record the payment received and interest income earned on the amount of note receivable, the following entry is recorded: | ||
| Cash | xxxxx | |
| Notes receivable | xxxxx | |
| Interest revenue | xxx |
Example Question
ABC is involved in the banking business. It has given some products to its customer amounting to $ 5,000. The customer on 1st July, 2016, make a note and properly signed it. After that, it was given to the ABC (the payee). The note carries an interest rate of 10 {1bb28fb76c3d282be6cfd0391ccf1d9529baae691cd895e2d45215811b51644c} per annum. On 30th September, 2016, the customer has paid fully against the note. Pass on the journal entries to record the above transactions.
Solution
| Date | Particulars | Debit $ | Credit $ |
| 01.07.16 | Notes receivable | 5,000 | |
| Cash | 5,000 | ||
| 30.09.16 | Cash | 5,125 | |
| Notes receivable | 5,000 | ||
| Interest revenue | 125 |