g Michael Co. accepts a $4,000, 3-month, 12% promissory note in settlement of an account with Tani Co. The entry to record this transaction is Notes Receivable 4,120 Accounts Receivable 4,120 Notes Receivable 4,000 Accounts Receivable 4,000 Notes Receivable 4,120 Accounts Receivable 4,120 Notes Receivable 4,000 Sales 4,000

Notes Receivable $ 4,000 Debit

Accounts Receivable $4,000 Credit

Explanation:

The entry to record a 3 month, 12 % promissory note is debit to Notes Receivable $ 4,000 and credit to Accounts Receivable $4,000.

So the entry would be

Notes Receivable $ 4,000 Debit

Accounts Receivable $4,000 Credit

Accepted 3 month 12 % Promissory Note

Under the journal entry we write the particulars indicating the terms and obligations.

It does not calculate the amount of interest or shows the amount to be collected after the due date. The interest amount is only shown in the journal entry when the note is mature and it is due not before it is matured.

If it is earned the entry would be

Cash $ 4120 Dr

Notes Receivable $ 4000 Cr

Interest Revenue $ 120 Cr

Collected note with interest 0f $ 4000 * 12 % * 3/12 = $ 120