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Financial & Managerial Accounting
Found in: Page 342
Financial & Managerial Accounting

Financial & Managerial Accounting

Book edition 7th
Author(s) John J Wild, Ken W. Shaw, Barbara Chiappetta
Pages 1096 pages
ISBN 9781259726705

Short Answer

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.

See the step by step solution

Step by Step Solution

Step-by-Step SolutionStep 1: Meaning of Notes Receivables

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.

Step 2: Reason

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.

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