Table of Contents

- What is a non interest bearing note receivable?
- When a company has a zero interest bearing note what happens to the discount on notes payable account during the duration of the loan?
- When a zero interest bearing note is issued the note payable account will be credited for the present value of the maturity value?
- What does non interest bearing principal balance mean?
- How do you calculate imputed interest on non interest bearing notes?
- How do you account for a note receivable?

## What is a non interest bearing note receivable?

A note receivable on which interest rate is not specified but the total interest amount is deducted on advance is called non-interest bearing notes receivable.

## When a company has a zero interest bearing note what happens to the discount on notes payable account during the duration of the loan?

The discount on a zero-interest-bearing note is amortized to interest expense only in the period the note is issued. The discount on a zero-interest-bearing note is amortized to interest expense over the life of the note.

**What is the difference between non interest bearing note and interest bearing note?**

In this lesson, you learned how to account for interest-bearing and non-interest bearing notes. The big difference between the two is that for non-interest bearing notes you need to calculate how much the implied interest is and subtract that from the note payable due on the maturity date.

### When a zero interest bearing note is issued the note payable account will be credited for the present value of the maturity value?

When a zero-interest bearing note is issued, the note payable account will be credited for the present value of the maturity value. The interest rate written in the terms of the bond indenture is called the effective yield or market rate. The semi-annual interest payment on a 6.5% HK$10,000,000 bond is HK$650,000.

### What does non interest bearing principal balance mean?

The non-interest bearing portion of the principal, which will sit idle and not accrue interest, is the only amount which qualifies for the conditional future reduction. This separated principal will not be greater than 30% of the present loan balance.

**How do we account for interest bearing and non interest bearing note receivable?**

How to Account for a Non Interest Bearing Note

- Calculate the present value of the note, discounted based on the market rate of interest.
- Multiply the market rate of interest by the present value of the note to arrive at the amount of interest income.

## How do you calculate imputed interest on non interest bearing notes?

Divide the note’s face value buy its discounted price. For example, if you pay $4,000 for a $6,500 non-interest bearing note that matures in five years, divide $6,500 by $4,000, giving 1.625. Divide 1 by the number of years until the bond matures. With this example, 1 divided by 5 is 0.2.

## How do you account for a note receivable?

For accounting purposes, a payee records a note receivable as an asset on its balance sheet and the related interest income on its income statement. The portion of the note receivable due to be repaid within one year is classified as a current asset and the balance as a long-term asset.