Alright. A couple more details about notes receivable. Let's see what happens when we acquire notes receivable and dispose of them. So we're gonna talk about two different ways that we generally acquire a note receivable. The first is a customer on account having difficulty paying. Okay? So a customer that has difficulty paying. Well they're gonna ask for a note. They're gonna offer a note receivable for more time to pay. Okay? The goods company gets a notice from their regular customer consistent chris that he will not be able to pay his $15,000 account on its due date of august 1st. On that day, consistent chris delivered a 15,005% 120 day note. Okay. So we got a lot of information. But what we'll notice is that previously remember that previously Um there was a journal entry when we made the sale to consistent Chris Right? We made a sale to consistent Chris and he had an account receivable for $15,000 and we had earned revenue of $15,000 on his account. All right. But now that time finally came around and he asked for more time. So what ends up happening? Now when we get this note receivable? Well, we are receiving a note receivable, Right. Note receivable is going to be our debit because it's a it's an asset Note receivable for 15,000. But what's our credit? What did we give up to get this note receivable? We got a note receivable. What we gave up was the previous account receivable. Right? We had an account receivable with consistent chris, well we no longer have an account receivable. Now we have a note receivable with consistent chris. So this credit of 15,000 gets the account receivable off of our books. Right. So do we see we see that they are in the first entry? Well let's not even do the first century. All we see is that we're having a swap from no from account receivable of 15,000. Now it's a note receivable of 15,000. Right? So notice in this situation we didn't just loan him out cash, right? We didn't loan them cash. And they gave us a note receivable? No, they were a customer that owed us money and now they're gonna owe us with interest. Okay, let's look at the second way a company might acquire a note receivable. And this is just when they have extra cash on hand, they had a successful quarter. They've got extra cash, they don't know what to do with, well they loan it out to earn some interest revenue. The good company had 12,000 extra cash on hand at the end of the corner which it loaned to. Quick Cash International with a 3.5% 30 day note. Alright, so how do we put this onto our books While we received a note receivable? Right? We gave them cash. We got a note receivable. So we're going to debit note receivable Uh for 12,000 were in a credit cash, right? We actually gave them cash in this situation. Uh it wasn't a customer with an account receivable, nothing like that. But notice we just use these face values right? We recorded them at face value which is generally what you're going to have to do in this class. So this journal entry ends up being pretty easy. We don't have to calculate interest, nothing like that. Remember that the interest we earn over time. Right now all we did was acquire the note receivable. We haven't earned any interest yet. Time is gonna pass and we'll earn some interest. Okay So let's finish up this lesson here with the the disposing of the note receivable. And this is on the maturity date? On the maturity date the note receivable becomes due. And we're going to receive cash. The cash we received is gonna be the principal plus the interest that we earned. Okay. And that will be on the maturity date. So let's see this example on april 1st the goods company had a $12,000 extra cash on hand At the end of the quarter which it loaned to quick cash international with a 3.5% 30 day note on April 30. Quick cash paid the note back. Okay so they paid the note back uh those 30 days later. And what are they going to pay back? They're gonna pay back the principal the 12,000 plus interest. So let's see how much interest there is going to be. So the first thing is to calculate the interest which is the 12,000 times the 3.5%. Which is 0.035 times our annual Ization our time factor. Right. So what do we have here? We have 30 days out of, remember we're assuming a 360 day years. It always makes the math more simple. So we just assumed 3 60 rather than 3 65. Especially when you're just learning this stuff right now. So 30 hour of 360 right? It's a 30 day note out of a 360 day year. So how much interest will this earn? 12,000 times 3600.35 times 30 divided by 3 60. That comes out to $35 in interest. Okay. So when we get paid on April 30, we're not just gonna get $12,000. We're gonna get $12,000 plus 35 in interest. So what's the total payment? Well, the total payment, it's going to be the 12,000 plus the 35 in interest. We're going to receive $12,035 in cash. So that's gonna be the debit of our entry cash for 12,000 And $35. Right. So what do we have to get rid of? Well the note receivable, we no longer have a note receivable. Right, we got paid that money. So we're gonna credit note receivable to get it off of our books For 12,000. Right. It was on our books for 12,000. The principal amount. Now. What about the extra $35 that interest? Well, that was revenue. We earned that interest as interest revenue By loaning out money. We loaned out money and we earned interest. So it's interest revenue for $35. All right, and there we go. Our entry is balanced. Right here. That is our journal entry right there and it's balanced. So we see that cash goes up 12,035 notes receivable and our notes receivable is going down by 12,000. So you see our assets went up by $35 in essence. Right? The cash went up 1235 and notes receivable went down 12. So the 35 is left over. And that was revenue, the interest revenue, which went up by 35 in our equity. So there we go. We are balanced there. That's behind me. Their revenue went up by $35 were balanced. Cool. Alright, let's go ahead and move on to the next video