Professor Adams' Lecture Materials

LO3-03: Characterize the accounting treatment of notes, including installment notes, issued for cash or for noncash consideration.

Long-term notes payable

A note payable is a promissory note (essentially an IOU), that obligates the issuing corporation to repay a stated amount at or by a specified maturity date and to pay interest to the lender between the issue date and maturity. A long-term note payable is a note payable that matures in a period that is longer than one operating cycle (i.e., > 1 year).

Note issued for cash

Note exchanged for assets or services

Installment notes

An installment note is a note payable that requires the repayment of the loaned amount through small increments, over the life of the loan. This is different than the notes discussed above because, in those notes, repayment of the loaned amount was made at the end of the loan period (i.e., at the maturity of the loan).

Each installment payment includes both:

1. An amount that represents interest, and
2. an amount that represents a reduction of the loan balance.

Common examples of an installment loans are car loans and home mortgage loans

The Office: Michael buys a condo

Page updated

Google Sites

Report abuse