October 30, 2016 admin

Discounted Notes Receivable

Assets

NON US DISCOUNTED NOTES RECEIVABLE ASSET ACCOUNT
1105

ACCOUNT EXPLANATION
Notes receivable from customers discounted in banks, at a discount rate. (Account is required because under the Mexican law the first Note possessor maintains responsibility for payment.)
TRANSACTIONS
  Jrnl. Dr. Cr.
  Note receivable discounted in banks CD
    Cash in Bank—General 1001
    Prepaid Interest   1520  
      Notes Discounted in Banks 1105
             
  Advise from the bank on Notes Receivable collected from the customer CD
    Notes Discounted in Banks 1105
      Notes Receivable 1100
             
  Advise from the bank on Notes Receivable NOT collected from the customer, turning back the document to dealer CD    
    Notes Discounted in Banks   1105  
      Cash in Bank—General     1001
             
  Customer prepayment of Notes Receivable Discounted in Banks CD    
    Notes Discounted in Banks   1105  
      Cash in Bank—General     1001
      Prepaid Interest     1520
COMMENTS
  • Subsidiary records should support accounts balance. At month-end, an aging schedule should be prepared for management review.
  • Do not cancel notes receivable because the Notes are Discounted in Banks, discount of documents provides cash, but creates a liability risk to be charged for the notes amount if the notes are not paid by the customer on the due date.
  • Subsidiary records should contain information concerning extension, interest rates for each one, and other terms and conditions for each of the available credit lines.
  • Notes receivable NOT collected from the customer, returned from the bank must be followed up to collect them from customer including the appropriate interest and expenses, this process may require legal assistance.