When a company receives an interest-bearing note receivable, it will
A) debit Notes Receivable for the maturity value of the note
B) debit Notes Receivable for the face value of the note
C) credit Notes Receivable for the maturity value of the note
D) credit Notes Receivable for the face value of the note

Question

Quizplus · Accepted Answer

When a company receives an interest-bearing note receivable, it should debit Notes Receivable for the face value of the note. This is because the face value represents the amount that the debtor owes to the company, which includes the principal amount and any accrued interest. The maturity value, on the other hand, represents the sum of the face value and any interest that will accrue until the note matures, and is not relevant until the note actually matures. Therefore, the correct accounting entry is to debit Notes Receivable for the face value of the note to reflect the initial amount due from the debtor.

When a Company Receives an Interest-Bearing Note Receivable, It Will