HEM9.PPTto pay a definite sum of money on demand or
at a future date.
Maker
The person who signs the note and thereby promises to pay
Payee
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the order of
Yankee Brothers, Inc.
No. Due
the order of
Yankee Brothers, Inc.
No. Due
following three methods :
1. a specific date, such as “November 11th, 2006”
2. a specific number of months after the date of the note, such as “2 months after date”
3. a specific number of days after the date of the note,
for example, “60 days after date”
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-- the due date is found by counting the
months from the date of issue
Example: If a note is issued on April 20th that
will be due in three months, the note will be
due on July 20th in the same year.
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Life of the note is expressed in terms of days
--you need to count the days
--include the issue date and exclude the maturity date
--include the maturity date and exclude the issue date
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Days left in October 28 days
Days in November 30 days
Days in December 2 days
Total 60 days
Days left in October 29 days
Days in November 30 days
Days in December 1 days
Total 60 days
Determining the duration of note
If the maturity date is stated in a specific number of days from the date of note
--the duration is obvious
date
--include the issue date and exclude the maturity date
--include the maturity date and exclude the issue date
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Example: the note is issued on September 6th
and the maturity date December 11th
Including the maturity date and excluding the issue date
Days left in September 24 days
Days in October 31 days
Days in November 30 days
Days in December 11 days
Total days 96 days
Example: the note is issued on September 6th
and the maturity date December 11th
Including the issue date and excluding the maturity date
Days left in September 25 days
Days in October 31 days
Days in November 30 days
Days in December 10 days
Total days 96 days
Non-interest note
Maturity value
Maturity value
A 60-day, 6%, $4000 note
The maturity value
To discount a note means to take out the interest
in advance.
Discount
When a note is discounted, the amount that the payee receives is called proceeds
10
11
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Discount
Discount
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Suppose that a 90-day note has a maturity value of
$2,000, is due in 60 days, and is discounted at 6%
rate of interest.
is discounted at 10 % on the date 30 days before
the maturity date.
Assume that a $ 4,000, 8%, 90-day note is received from
a customer on August 1st.
The entry?
Revenues from sales $4,000
When the note including interest is collected 90 days later
The entry?
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Exercise
If the note is dishonored, the payee or holder of the
note will transfer the notes receivable and interest
income to accounts receivable.
Notes Receivable $4,000
Interest Income $320
and the discount rate is 10%
Maturity value = $4,000+$320 = $4,320
Discount = $4,320 × 10% × 30/360 = $36
Proceeds = $4,320 - $36 = $4,284