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Ch. 23 vocab
|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.
|A person or organization to whom a liability is owed.
|Promissory notes signed by a business and given to a creditor.
|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.
|The amount that is due on the maturity date of a note.
|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.
|A source document is prepared for each transaction.
|The interest accrued on money borrowed.
|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.
|The interest earned on money loaned.
|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.