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What Is a Notes Receivable?

It is possible for people to take out loans or debts in order to pay for an item now through another entity, and pay that entity the amount with or without interest at a later date. In order to take out the loan, the person must provide a document that indicates that he or she promises to pay the debt. This note is referred to as a notes receivable.

When the entity that is entitled to reclaiming the debt enters the loan into the account system, it is noted as notes receivable or debt due. This is in contrast to a notes payable, which indicates that the person or entity is in debt and must pay to the person or entity holding a notes receivable. Both are recognized and entered into finance accounts in order for people or other parties to keep track of their debts.

It is generally known that a debt reflected as notes receivable involves the principal, or the initial amount of the loan, and the interest, the money that accumulates over time based on a percentage of the loan. It is also possible that other fees may be included in the notes receivable. These fees may be late fees, which is incurred when the payment of debt is not received according to the time period stipulated.

When recording notes receivable in an account ledger, it is categorized as current on noncurrent. The former refers to debts due in less than a year, while the latter is debt whose terms of payment is more than a year.

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