Why might a business prefer a note receivable to an account receivable?
An organization earns interest revenue on a note receivables issued by a debtor.
Notes receivable is a promissory note that a debtor gives to an organization, which acknowledges the due payment to be paid along with the amount and the terms and conditions.
A business or a creditor always prefers a note receivable to accounts receivables because the notes are highly liquid (i.e., they can be easily converted into cash whenever required before their maturity date).
Sometimes sellers prefer notes receivable for legal reasons, even if an amount is large and the time phase of a credit is long.
The following list describes aspects of either the allowance method or the direct write-off method to account for bad debts. For each item listed, indicate if the statement best describes either the allowance (A) method or the direct write-off (DW) method.
2. Accounts receivable on the balance sheet is reported at net realizable value.
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