CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning LESSON 20-1 Promissory Notes

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning When Lending and Borrowing are Necessary CASH is the primary medium of exchange for business transactions. If a business get more cash than it needs, they will often deposit the money in the bank. 2 LESSON 20-1

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning Uses of Promissory Note Promissory Note- a written and signed promise to pay a sum of money at a specific time. Creditor- a person or organization to whom a liability is owed. Notes Payable- Promissory notes signed by a business and given to a creditor. 3 LESSON 20-1

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning 4 LESSON 20-1 USES OF PROMISSORY NOTES page Number 8. 8.Maker 7. 7.Maturity date 6. 6.Interest rate 5. 5.Principle 3. 3.Payee 2. 2.Date of a note 4. 4.Time of a note

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning Interest on Promissory Notes Interest- an amount paid for the use of money for a period of time Notes issued for less than one year are typically stated in days Such as 30, 60, or 90 days To calculate the interested, you need to multiple the principal x the interest rate 5 LESSON 20-1

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning 6 LESSON 20-1 Interest for One Year = Time in Years × Interest Rate ×Principal INTEREST ON PROMISSORY NOTES page 590 Interest for One Year $1,200.00=1×6%×$20, Interest for Fraction of Year = Time as Fraction of Year × Interest Rate ×Principal Interest for Fraction of Year $300.00=×6%×$20,

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning 7 LESSON 20-1 Maturity Value =Interest+Principal INTEREST ON PROMISSORY NOTES page 590 Maturity Value $20,300.00=$ $20,000.00

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning 8 LESSON 20-1 MATURITY DATE OF PROMISSORY NOTES page 591 May 18, 90-Day Note May18–May 3113 days June30 days July31 days August 1–August 1616 days Total90 days Subtract the date of the note from the number of days in the first month. 2.Add 30 days for June. 3.Add 31 days for July. 4.Add only 16 days in August.

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning 9 LESSON 20-1 TERMS REVIEW number of a note date of a note payee of a note time of a note principal of a note interest rate of a note maturity date of a note maker of a note promissory note creditor notes payable interest maturity value page 592