Respuesta :
the entry required on orange's books on December 31, at the end of the year includes a debit (DR.) to Notes Receivable, $40,000.
What are notes receivable?
- A bill receivable consists of the "payee" (usually a company, sometimes called a creditor) and the "creator" of the promissory note (usually a customer) in writing or an employee, sometimes also called a debtor).
- A bill receivable can exist between a company and another party (another company, a financial institution, or an individual).
- Most often it happens when a customer takes longer to pay for a sale than standard billing terms.
- Instead of agreeing to a later payment, the recipient charges interest and requires a signed promissory note for legal reasons.
- A cash advance to an employee, where the company requires the employee to sign a promissory note, is another way to obtain a promissory note.
- Bills receivable have a higher probability of payment than easy credit purchases called accounts receivable.
- This is by means of a signed promissory note, which can be presented as evidence in court proceedings.
- In addition, bills receivable may be sold to third parties. By reducing outstanding "bad debt", collecting interest income, and facilitating contract sales, bills receivable are a tool for improving cash flow.
- For accounting purposes, the payee records the bill receivable as an asset on its balance sheet and the related interest income on its income statement.
- The portion of the bills receivable that is repaid within one year is classified as current assets and the remainder is classified as non-current assets.
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