A promissory note is an unconditional promise to pay a definite sum of money on demand or at a future date. Companies selling durable goods of high value, such as farm machinery and automobiles, often accept promissory notes, which can be sold to banks as a financing method.
In accounting for promissory notes, it is important to know how to calculate the maturity date, duration of note, interest rate, and maturity value. The accounting entries for promissory notes receivable fall into four groups:
- recording receipt of a note,
- recording collection on a note,
- recording a dishonored note, and
- recording adjusting entries.
