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Accounting ll

Ch. 23 vocab

QuestionAnswer
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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