of note Section Promissory Notes Glencoe

							Notes Payable and
Receivable
Making Accounting Relevant
Long-term liabilities are reported on a
company’s balance sheet.

    Discuss the types of long-term
    liabilities that a company may
    show on its balance sheet.
Section 1 Promissory Notes

What You’ll Learn

 How promissory notes are used.

 How to determine the due date,
  interest expense, and maturity
  value of a promissory note.
  Section 1 Promissory Notes (cont'd.)




Why It’s Important

  In order to properly record a
promissory note in the accounting
records, you need to read and
interpret the information found on
the note itself.
Section 1 Promissory Notes (cont'd.)


   Key Terms
       promissory note
       note payable
       note receivable
       principal
       face value
       term
       issue date
       payee
       interest rate
       maturity date
       maker
       interest
       maturity value
      Section 1 Promissory Notes (cont'd.)

A Promise to Pay
 A promissory note is a written promise
  to pay a certain amount of money at a
  specific time.
 “Promissory note” is often shortened
  to “note.”
      Section 1 Promissory Notes (cont'd.)


Determining the Maturity Date of
a Note
 When a note is signed, the maker
  agrees to repay the note within a
  certain period of time, usually
  expressed in days or months.
 This period of time is the term of the
  note.
 Both the term and the issue date
  (date on which the note is signed)
  are needed to determine the
  maturity date (due date) of a note.
      Section 1 Promissory Notes (cont'd.)


Calculating Interest Due on a
Note
 Interest is the fee charged for the use
  of money. The interest rate is the
  interest stated as a percentage of the
  principal.
 The formula used to compute interest
  is:

 Interest = Principal  Interest Rate  Time
       Section 1 Promissory Notes (cont'd.)



Calculating Interest on a Note
(cont'd.)


  If the term of a promissory note is
     less than one year, the time in the
     calculation is expressed as a
     fraction of one year.
    Section 1 Promissory Notes (cont'd.)



Check Your Understanding

   If the interest rate for a

promissory note is stated on an

annual basis, and if the promissory

note has a term that is less than one

year, how is the interest for the note

calculated?