C.

Clerigo
 At the end of the session, you should be able to:
1. Define promissory note and give its elements.
2. Give the two parties to a promissory note.
3. Compute for interest, maturity value, bank
discount and cash proceeds.
4. Give the necessary journal entries in the books
of the maker and the payee.
5. Give the necessary journal entries to record
discounting of note receivable and note payable.
 An unconditional promise in writing made
by one person to another engaging to pay
on demand or at a fixed determinable time
a sum certain in money.
 Two parties:
 Maker
 Payee
 October 1, 2015

I promise to pay X, P5,000 on October 31, 2015

with 12% interest per annum.
(Sgd)
Y

1. Date of Note October 1, 2015

2. Maturity Date October 31, 2015
3. Maker Y
4. Payee X
5. Face Value/Principal P5,000
6. Interest rate 12%
Formula for Computation of Interest
I= PRT
= P5,000 x 12% x 30/360
= P50
Formula for Maturity Value
MV = P + I
= P5,000 + P50
= P5,050
I- Receipt of Promissory Note
1. Service Rendered
Note Receivable xxx
Service Revenue xxx
2. Lending of money
Note Receivable xxx
Cashxxx
3. Settlement of account
Cash xxx
Notes Receivable xxx
Interest Income xxx
4. Note Dishonored
Accounts Receivable xxx
Notes Receivable xxx
interest Income xxx
I– Issuance of Promissory Note
1. Purchase of asset/equipment
Equipment xxx
Note Payable xxx
2. Borrowing of money
Cashxxx
Note Payable xxx
3. Settlement of account
Notes Payable xxx
Interest Expense xxx
Cash xxx
4. Note Dishonored
Notes Payable xxx
Interest Expense xxx
Accounts Payable xxx
 1. Issuance/Date of Promissory Note
BOOKS OF MAKER (Y)
Date Particulars Debit Credit
2015
Oct 1 Cash 5 000
Notes Payable 5 000
Issuance of Promissory Note

BOOKS OF PAYEE (X)

Date Particulars
2015
Oct 1 Notes Receivable 5 000
Cash 5 000
Receipt of promissory note
 2. Maturity Date
BOOKS OF MAKER (Y)
Date Particulars Debit Credit
2015
Oct 31 Notes Payable 5 000
Interest Expense 50
Cash 5 050
Payment of Promissory Note
BOOKS OF PAYEE (X)
Date
2015 Particulars
Oct 31 Cash 5 050
Notes Receivable 5 000
Interest Income 50
Collection of Note plus interest
Dishonoring promissory note
When the maker fails to pay the principal
and interest on maturity date, then the
promissory note is considered dishonored.
Journal entry for the maker – instead of
crediting Cash, Accounts Payable is
credited
Journal entry for the payee – instead of
debiting Cash, Accounts Receivable is
debited.
 2. Dishonoring a Promissory Note
BOOKS OF MAKER (Y)
Date Particulars Debit Credit
2015
Oct 31 Notes Payable 5 000
Interest Expense 50
Accounts Payable 5 050
Promissory Note dishonored
BOOKS OF PAYEE (X)
Date
2015 Particulars
Oct 31 Accounts Receivable 5 050
Notes Receivable 5 000
Interest Income 50
Promissory note dishonored
End