Journal Entries for Notes Receivable: A Complete Guide with Examples

Quick Answer: A note receivable is a written promise to receive a specific amount of money on a future date, typically with interest. The journal entries involve debiting Notes Receivable when the note is issued, accruing Interest Receivable each period, and clearing both when the maker pays. If the note is dishonored (not paid), you transfer the balance to Accounts Receivable and continue collection efforts.

Notes receivable are formal lending arrangements where a borrower (the maker) signs a promissory note agreeing to pay the lender (the payee) a specified sum on a specified date. Unlike standard accounts receivable, notes receivable carry explicit interest terms and a defined maturity date. This guide covers all the journal entries you need — from issuance through collection, including what happens when things go wrong.

What Is a Note Receivable?

A note receivable is a written promissory note that gives the holder the right to receive a fixed amount of money on a future date. It typically includes three key components: the principal (face value), the interest rate (stated as an annual percentage), and the maturity date (when payment is due). Notes receivable appear on the balance sheet as a current asset if the maturity date is within 12 months, or as a non-current asset if longer. For a deeper look at how notes differ from standard receivables, see our guide on journal entries for accounts receivable.

Journal Entry for Issuing a Note Receivable

When your business accepts a note receivable — for example, converting an overdue accounts receivable balance into a formal note, or lending cash directly — you debit Notes Receivable and credit either Cash (if lending money) or Accounts Receivable (if converting an existing balance).

Scenario: Converting an Overdue Invoice to a Note

Suppose a customer owes $10,000 on an overdue invoice. To formalize the debt, they sign a 90-day note with 6% annual interest. The journal entry to record the issuance:

Scenario: Lending Cash Against a Note

If you lend $5,000 in cash to a business partner and receive a 6-month, 5% note:

Accruing Interest on a Note Receivable

Interest accrues over the life of the note, even if the cash hasn't been received yet. Under accrual accounting, you must recognize interest revenue in the period it's earned. The formula for calculating interest is:

Interest = Principal × Annual Rate × (Days Outstanding ÷ 365)

At the end of each accounting period (monthly, quarterly, or annually), you record the accrued interest. For the $10,000 note at 6% from above, after 30 days the accrued interest would be: $10,000 × 6% × (30 ÷ 365) = $49.32.

You repeat this entry each period until the note matures. For a 90-day note with month-end reporting, you'd record this entry three times. For more on interest accounting, see our guide on journal entries for interest expense (which covers the borrower's side).

Journal Entry for Collecting a Note Receivable at Maturity

When the note reaches its maturity date and the maker pays in full, you receive both the principal and all accumulated interest. Using the $10,000, 90-day, 6% note example — total interest earned is $10,000 × 6% × (90 ÷ 365) = $147.95.

This entry clears the Notes Receivable from your books and recognizes the cash inflow. If you had only accrued some of the interest before maturity (say $98.63 across two month-ends), you'd credit that accrued balance and record the remaining $49.32 directly to Interest Revenue.

Journal Entry for a Dishonored Note Receivable

A dishonored note occurs when the maker fails to pay at maturity. This doesn't mean the debt is worthless — it means you reclassify the amount back to Accounts Receivable and continue pursuing collection. The total amount transferred includes both the principal and any unpaid accrued interest.

After this entry, the full $10,147.95 sits in Accounts Receivable. You may also need to evaluate whether an allowance for doubtful accounts is warranted. See our guide on allowance for doubtful accounts for more on bad debt estimation. If the note had been received as settlement of a loan, refer to our coverage of journal entries for notes payable to understand the full borrowing/lending picture from both sides.

Notes Receivable vs. Notes Payable: The Two Sides

The accounting is symmetrical but the perspective flips. A note receivable is an asset (you'll receive money), while a note payable is a liability (you'll pay money). Here's how the core entries compare:

Transaction	Notes Receivable (Lender)	Notes Payable (Borrower)
Issuance	Dr. Notes Receivable Cr. Cash / A/R	Dr. Cash / A/P Cr. Notes Payable
Interest Accrual	Dr. Interest Receivable Cr. Interest Revenue	Dr. Interest Expense Cr. Interest Payable
Maturity Payment	Dr. Cash Cr. Notes Receivable Cr. Interest Receivable	Dr. Notes Payable Dr. Interest Payable Cr. Cash

Disclosure Requirements for Notes Receivable

Under both GAAP and IFRS, notes receivable require disclosure in the financial statement footnotes. At minimum, you must disclose the aggregate amount of notes receivable, the interest rates and maturity dates, any notes pledged as collateral, and the allowance for credit losses (CECL under ASC 326). Notes receivable from related parties must be disclosed separately, including the nature of the relationship and the terms.

Key Takeaways

• Issuance: Debit Notes Receivable, credit Cash or Accounts Receivable — establishes the asset on your books.
• Interest accrual: Debit Interest Receivable, credit Interest Revenue — recognized each period under accrual accounting using the formula Principal × Rate × (Days ÷ 365).
• Collection: Debit Cash for principal plus all interest, credit Notes Receivable and Interest Receivable — clears both accounts at maturity.
• Dishonored notes: Transfer the total (principal + interest) back to Accounts Receivable and reassess collectibility.
• Disclosure: Report notes receivable terms, interest rates, maturities, and related-party notes in your financial statement footnotes.