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Journal Entries for Notes Receivable Transactions
Two reasons for accepting a note from a customer are (1) as a promise of payment on
a credit purchase, and (2) to grant a time extension on an amount owed on an open
account. In both cases, the customer's note is recorded in a notes receivable account.
Use the following transactions for Joy’s TV and Electronics to demonstrate journal
entries for your class.
1. June 1: Sold a $2,000 big-screen TV to a customer. The customer was asked to
sign a 120day, 12% note. (Hint: the interest is not recorded until it is earned.)
June 1
Notes Receivable…………………….
2,000
Sales…………………….….
2,000
1. Sept. 29: Received payment on the $2,000, 120-day, 12% note.
Sept. 29
Cash…………………………………
2,080
Notes Receivable…………….
2,000
Interest Revenue……………..
80
2. Oct. 1: Granted a 60-day time extension to S. Greene, who owed $1,000 on
account. Ms.
Green signed a 60-day, 15% note for the amount owed.
Oct. 1
Notes Receivable……………………..
1,000
Accounts Receivable-S. Greene
1,000
3. Nov. 30: Received payment on the $1,000, 60-day, 15% note from S. Greene.
Nov. 30
Cash…………………………………..
1,025
Notes Receivable……………..
1,000
Interest Revenue………………
25
4. Dec. 1: Granted a 90-day time extension to J. Smith, who owed $800 on account.
Mr. Smith
signed a 90-day, 15% note for the amount owed.
Nov. 1
Notes Receivable……………………….
800
Accounts Receivable—J. Smith
800
NOTE: Assume the accounting period ends on December 31. At that time, 30 days
of interest have been earned on the note from J. Smith. The matching concept dictates
that any interest earned but not received must be recorded through an adjusting entry.
Therefore, an adjusting entry would be made to record 30 days of interest on the $800
note.
5. Dec. 31: Record interest earned on the note from J. Smith.
Dec. 31
Interest Receivable…………………….
Interest Revenue……………….
10
10
6. Mar 1: Received payment on the $800, 90-day, 15% note from J. Smith.
Mar. 1
Cash …………………………………
1,030
Notes Receivable…………….
1,000
Interest Receivable…………..
Interest Revenue…………….
10
20