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What Is a Notes Receivable?

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  • Written By: Mary McMahon
  • Edited By: O. Wallace
  • Last Modified Date: 17 July 2014
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Notes receivable are documents which indicate a promise to pay a debt. The holder of a note receivable records it as debt due, much as business record outstanding accounts as accounts receivable. By contrast, a note payable is a debt obligation and someone who holds a note payable must record it as a debt which must be paid. Notes receivable and notes payable are given their own entries in accounting ledgers so that people can keep track of their finances.

The terms of a loan can vary considerably. As a general rule, the debt due on a note receivable includes both the principle of the loan and the interest, which accrues over time. In addition, there may be fees associated with the loan, such as late fees which will be charged if the loan is not repaid in a timely fashion. The physical copy of the document will also provide information about who took out the loan and what the loan was for, if this is applicable.

If notes receivable are due in less than 12 months, they are recorded as “current.” Terms longer than 12 months are recorded as “noncurrent.” Notes receivable may be considered an asset because they reflect money which a company is owed and can collect if it is not submitted when the note becomes due. Companies generally do not like to keep overdue notes receivable on their books and will take collection actions on late repayments.

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When looking at accounting records, if a company has any notes receivable, they will be recorded and noted. People can get more information about the debt by looking at whether or not it is current and taking note of whether or not it is recorded as overdue. People who hold the corresponding note payable may want to confirm that the information recorded on both documents is the same and they should request a correction if it is not so that they are not held liable for debt they do not believe they incurred.

The businesses most likely to have notes receivable are banks, as they are in the business of making loans. However, there may be other types of businesses or companies which extend loans or credit and record notes receivable in their accounting books. In the case of a company which is publicly traded, information about outstanding notes receivable and payable is included in financial disclosures accessible to shareholders and investors.

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Discuss this Article

JessicaLynn
Post 2

@Azuza - These terms do make a lot of sense and I think I'm going to implement this in my life next time someone asks me to lend them money. I feel like people will be more likely to pay me back if I can throw around official terms like "notes receivable" and "notes payable."

Azuza
Post 1

These terms make a lot of sense. The note receivable is held by the person who is owed the money. In contrast, the note payable is held by the person who is obligated to pay the money. So for example the company I got my car loan from holds the note receivable for the loan while I hold the note payable.

Some accounting terms are kind of hard to understand but I think this concept is pretty simple!

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