Answer :
When calculating interest expense on a 6-month note, multiply the principal by the interest rate, and then multiply by 6/12. [TRUE]
Definition of Notes receivable
The definition of Notes receivable is a formal written statement of the amount owed by the customer. As long as it is expected to be collectible within one year, the note receivable is included in the current asset group which is presented in the balance sheet financial statements. These notes can be used to pay off customer receivables. These notes and accounts receivable resulting from sales transactions are sometimes called trade receivables. Claims backed by a note have several advantages over claims in the form of accounts receivable.
How to calculate interest on a note The interest rate stated on the note is usually valid for one year. For notes with maturities of less than one year, this term must be expressed in terms of a one-year term.
The formula is as follows:
Interest = Nominal Value X Interest Rate X Interest Period/Term of a Year
If notes are expressed in days, the period of one year must be expressed in days. In general, one year is considered 360 days (30 X 12 months).
If the note is expressed in months, the term of one year will be expressed in 12 months (1 year = 12 months).
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