SUMMARY: ACCOUNTING FOR NOTES PAYABLE
PREPARED BY: EDEN C. CABRERA
TYPE OF NOTES PV FORMULA DISCOUNT FORMULA
(1) short-term; non-
interest bearing; face PV=cash proceeds or face value none
value=cash proceeds
(2) short-term;
PV=face value none
interest bearing
(3) short-term; non-
interest bearing; face
value > cash PV = cash proceeds Face Value - Cash Proceeds
proceeds;
(4) short-term; non-
interest bearing; face
value > cash PV = cash proceeds Face value - cash proceeds
proceeds; payable on
installment
(5) long-term; interest
bearing; interest rate PV = face value
none
is same as prevailing
market rate
(6) long-term, non-
interest bearing; PV = cash proceeds Face value - Cash proceeds
issued for cash
(7) long-term; non-
interest bearing;
issued for non-cash PV = cash price Face value - Cash price
asset; cash price is
given
(8) long-term; non-
interest bearing;
issued for non-cash PV = Periodic payment x PVf of Face Value - Present value
asset; no cash price annuity of P1
given; payable in
installments
(9) long-term; non-
interest bearing;
issued for non-cash PV = lumpsum payment x PVF of Face value - Present value
asset; no cash price is P1
given; payable in
lumpsum
(10) long-term; non-
interest bearing;
issued for non-cash
asset; no cash price PV = periodic payment x PVF of Face value - Present Value
given; payable in annuity due
installments with fist
payment given in
advance
(11) long-term;
interest bearing;
interest rate is
substantially lower PV = (face value x PVF of P1) +
than the prevailing (periodic interest payment x PVF Face value - Present Value
market rate; principal of annuity of P1)
is payable in
lumpsum; interest is
payable periodically
(12) long-term; non-
interest bearing; PV = total of the PV of each
issued for non-cash scheduled payment; PV of each
Face value - Present value
asset; no cash price scheduled payment = scheduled
given; periodic payment x PVF of P1
payment is unequal
DISCOUNT AMORTIZATION INTEREST EXPENSE, END OF YEAR 1
METHOD
none none
none I=Pxrxt
Straight-line method I = Discount/term of note x time
Outstanding balance method I = (outstanding balance, Yr1/Total of
Outstanding Balances) x Discount
none I=Pxrxt
effective interest method I = Pv x eir x t
effective interest method I = Pv x eir x t
effective interest method I = Pv x eir x t
effective interest method I = Pv x eir x t
effective interest method I = PV(net of first payment) x eir x t
effective interest method I = Pv x eir x t
effective interest method I = Pv x eir x t
SUMMARY: ACCOUNTING OR NOTES PAYABLE
TYPE OF NOTES PV FORMULA
(1) short-term; non-
interest bearing; face
value=cash proceeds
(2) short-term;
interest bearing
(3) short-term; non-
interest bearing; face
value > cash
proceeds;
(4) short-term; non-
interest bearing; face
value > cash
proceeds; payable on
installment
(5) long-term; interest
bearing; interest rate
is same as prevailing
market rate
(6) long-term, non-
interest bearing;
issued for cash
(7) long-term; nn-
interest bearning;
issued for non-cash
asset; cash price is
given
(8) long-term; non-
interest bearning;
issued for non-cash
asset; no cash price
given; payable in
installments
(9) long-term; non-
interest bearning;
issued for non-cash
asset; no cash price is
given; payable in
lumpsum
(10) long-term; non-
interest bearing;
issued for non-cash
asset; no cash price
given; payable in
installments with fist
payment given in
advance
(11) long-term;
interest bearing;
interest rate is
substantially lower
PV = (PVF of 1 x face value) + (PVF of annuity
than the prevailing
of 1 x periodic interest payment)
market rate; principla
is payable in
lumpsum; interest is
payable periodically
(12) long-term; non-
interest bearing;
issued for non-cash
PV = sum of PV of all periodic payments;
asset; no cash price
given; periodic
payment is unequal
