Question

Which of the following makes notes receivable different from accounts receivable? (Select all that apply.) Multiple select question. Accounts receivable are interest bearing. Notes receivable are interest bearing. Notes receivable have a stronger legal claim. Notes receivable are formal written contracts. Accounts receivable are formal written contracts.

Answer 1

The following makes notes receivable :

- Notes receivable are formal written contracts.

- Notes receivable have a stronger legal claim.

- Notes receivable are interest bearing.

What are Notes Receivable?

Notes receivable are a balance sheet item that records the value of promissory notes that a business is owed and should receive payment for. A written promissory note gives the holder, or bearer, the right to receive the amount outlined in the legal agreement. Promissory notes are a written promise to pay cash to another party on or before a specified future date.

If the note receivable is due within a year, then it is treated as a current asset on the balance sheet. If it is not due until a date that is more than one year in the future, then it is treated as a non-current asset on the balance sheet.

Often, a business will allow customers to convert their overdue accounts (the business’ accounts receivable) into notes receivable. By doing so, the debtor typically benefits by having more time to pay.

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