 In this discussion, we will discuss the discussion question of describe the difference between an account receivable and note receivable. When considering an account receivable and notes receivable, it may be best first to define the accounts receivable and how the accounts receivable would be gotten on the books, what's the journal entry to record a typical accounts receivable, it being the one that is probably most common and then compare and contrast the note receivable to it. So the accounts receivable is something that's going to be an asset, a current asset, it gets on the books, it's recorded due to something that happened in the past, a prior transaction, typically a sale. We have a sale of goods or services and we record the accounts receivable as part of that if the sale was made on accounts, in other words, we made the sale. We didn't collect cash, we're going to collect cash in the future, that's what the accounts receivable represents. So the journal entry then would be, if we made a sale on accounts, we would debit accounts receivable, increase in the asset account, credit revenue, that revenue could be called revenue, it could be called income, it could be called sales if it's a sale of goods or it could be called fees earned if it's a sale of services. If we do sell goods just at the same point in time under a perpetual system, we would also typically debit cost of goods sold and inventory, credit inventory, which would record the reduction of inventory and the related cost expense of the goods we sold. That's how the accounts receivable would be on the books, then the accounts receivable then is an asset, it's not cash, it's representing a kind of intangible type of asset, a claim to something in the future, typically a claim to future revenue, I mean future cash that we're going to receive at some point in the future. We already recorded the revenue at the point in time we recorded the receivable when we earned it and then when we get the revenue, and then when we get the cash, the journal entry would be a debit to cash and a credit to accounts receivable, reduce in the accounts receivable. So that's the accounts receivable, what's the difference between it and notes receivable? The note receivable will typically be there if we're talking about something that has a couple characteristics, one, if it's a larger dollar amount, two, if it has a longer term of payment, like the accounts receivables usually around 30 days, if we have a longer term of payment we might want to have a note receivable rather than an accounts receivable, and three, we may want to charge interest on this. Now of course they're all related, so I mean if we have a larger dollar amount we probably want to charge interest on it, if we have a longer term than 30 days we probably want to charge interest on it. And if we are charging interest and it's longer than 30 days and the dollar amount is larger, we probably want some formal documentation which typically often happens with a note receivable, meaning we have a written promise oftentimes to pay listing out what the principal will be, what the interest will be on it, what the terms of the note are in that documentation. So the difference between a note receivable one is usually it's in writing rather than a verbal agreement, usually the terms are longer, usually we're going to be charging interest on it, and so those are going to be some of the differences for it. In terms of recording the note receivable it's still going to be an asset, but and it may still be a current asset and most of the notes receivable we will be working with will still be current assets, that being because they're going to be due within a year, less than a year still. But the term is usually longer than the accounts receivable. So note that the difference is not that the accounts receivable is a current asset and the notes receivable is a non-current asset. That's not necessarily the difference, that might be a difference between a particular note receivable and accounts receivable. Usually there is a difference between the term, but it may not be a full year, so that is not the distinguishing factor. The term is usually longer, maybe 60 to 90 days rather than 30 days, and usually we have the interest on it. So it's going to be on the books as an asset. It's not going to be tracked in the same subsidiary ledger as the accounts receivable, which is going to be a list of accounts by customer that will support the accounts receivable account, the number in the accounts receivable The notes receivable, we may break out a separate note receivable on you have a different account for each note receivable and then be recording the interest on some other ledger or we could put them all into one account notes receivable and have a similar supporting documentation as the subsidiary ledger for accounts receivable, noting both the customers that owe us for the note receivable as well as the interest calculation on the notes receivable. The journal entry to record notes receivable could be very same or very similar to pretty much the same as accounts receivable except replacing notes receivable for accounts receivable if we made a sale on account for a note rather than accounts receivable. So if we got informal notes when we made the sale because possibly the dollar amount was larger, possibly we wanted to charge interest on it, possibly the terms were longer, we would debit rather than accounts receivable, notes receivable, credit sales, revenue, income, or fees earned whatever we call the revenue account and then we debit costs to get sold in credit inventory if we sell inventory on a perpetual method. So that would be how the notes receivable gets on the books. Now it is possible as well to convert an accounts receivable to a notes receivable meaning if the accounts receivable became non-due if it took over the term of the account receivable over typically 30 days to collect then we may say okay now we want formal documentation on this and that would be an agreement for us to have with the customer to try to assure payment in the future, getting a promissory note, converting it from a receivable of an account receivable to a note receivable, the journal entry being simple, debiting note receivable, increasing that asset, crediting accounts receivable, decreasing that asset. It's also possible to go the other way. It's also possible that if the note was dishonored and we didn't get paid within the time period we would still want to track who owes us the money and we would have to take it out of notes receivable possibly and put it into accounts receivable so that we could still track it in the subsidiary ledger and record the fact that the term of the note is over meaning to do that we would debit accounts receivable, credit note receivable for the principal and then credit any interest earned on the notes receivable, converting it back to the accounts receivable so that we can still track it in the subsidiary ledger and still try to take collection action on it.