In accounting, the term notes receivable refers to the sum of combined promissory notes issued by third parties to a company or other entity.
Typically, notes receivable are settled over significantly longer terms than accounts receivable. Notes receivable differ from accounts receivable in that the issuers of promissory notes may pay interest on the debt they owe.
Example of a note receivable:
An ice cream vendor orders 2 tons of ice cream from a manufacturer. The manufacturer’s wholesale price for the ordered ice cream comes to 6000 Swiss francs. Because the vendor does not pay for the produce in cash on delivery, the money owed is added to the manufacturer’s accounts receivable. Due to slow business, the vendor is unable to pay their bill by the end of the month, so it issues a promissory note by which it legally binds itself to repay the debt. The 6000 francs now becomes a loan, and is listed in the manufacturer’s notes receivable. As part of the agreement, the manufacturer charges the vendor interest on the loan at the rate of 1% per annum.
See also: Notes payable
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