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Accounting ll
Ch. 23 vocab
| Question | Answer |
|---|---|
| Business transactions are stated in numbers that have common values; that is, using common unit of measurement. | Unit of Measurement |
| A written and signed promise to pay a sum of money at a specified time. | Promissory note |
| A person or organization to whom a liability is owed. | Creditor |
| Promissory notes signed by a business and given to a creditor. | Notes Payable |
| The person or business to whom the amount of a note is payable. | Payee of a note |
| The date a note is due. | Maturity date of a note |
| The percentage of the principal that is paid for use of the money. | Interest rate of a note |
| The person or business who signs a note and thus promises to make payment. | Maker of a note |
| The original amount of a note; sometimes referred to as face amount of a note. | Principal of a note |
| The days, months, or years from the date of signing until a note is to be paid. | Time of a note |
| FYI -- Advantage of notes | Notes have an advantage over oral promises and accounts receivable or payable. Notes can be useful in a court of law as written evidence of a debt. |
| An amount paid for the use of money for a period of time. | Interest |
| The amount that is due on the maturity date of a note. | Maturity value |
| FYI – Time expressed | The time between the date a note is signed and the date a note is due is typically expressed in days. The maturity date is calculated by counting the exact number of days. |
| FYI – Bank year (# days) | Agencies of the federal government generally use a 365-day year when calculating interest. Consumer interest is also generally calculated on a 365-day year. However, many banks use a 360-day year when calculating interest. |
| Liabilities due within a short time, usually within a year. | Current Liabilities |
| A source document is prepared for each transaction. | Objective Evidence |
| The interest accrued on money borrowed. | Interest Expense |
| FYI – Interest Expense classification | Interest expense is a financial expense rather than an expense of the business's normal operations. Therefore, Interest Expense is listed in a classification titled Other Expenses in a chart of accounts. |
| FYI – Extension of time | A business may ask for an extension of time if it is unable to pay an account when due. The vendor may ask the business to sign a note payable. The note payable does not pay the amount owed to the vendor. Form changed to note payable from account payable. |
| Promissory notes that a business accepts from customers. | Notes Receivable |
| The interest earned on money loaned. | Interest income |
| FYI – Interest Income classification | Interest income is investment revenue rather than revenue from normal operations. Therefore, Interest Income is listed in a classification titled Other Revenue in a chart of accounts. |
| A note is not paid when due. | Dishonored note |
Created by:
mmincy
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