Chapter 8, Problem 1Q

What is the difference between an account receivable and a note receivable?

To determine

Accounts receivable

Accounts receivable refers to the amounts to be received within a short period from customers upon the sale of goods and services on account. In other words, accounts receivable are amounts customers owe to the business. Accounts receivable is an asset of a business.

Note receivable

Note receivable refers to a written promise for the amounts to be received within a stipulated period of time. This written promise is issued by a debtor or borrower to lender or creditor. Notes receivable is an asset of a business.

To describe: The difference between an accounts receivable and a note receivable.

Explanation of Solution

Accounts receivable are amounts customers owe to the business, on the other hand notes receivable are amount, to be received from the borrower or debtor. Accounts receivable arise upon the sale of goods and services on account, but note receivable arise upon borrowing or lending activity, or at the time of settling accounts receivable through exchange of accounts receivable for note receivable.