Question

With regard to notes receivable, which of the following statements is correct?

a) Notes receivable are less formal contracts than accounts receivable.
b) Notes receivable are also called promissory notes because a written promise to pay is not required.
c) All notes receivable require the borrower to pledge collateral.
d) The borrower signs a written promise to pay the lender a definite sum at the maturity date, with interest.

Answer 1

The correct statement regarding notes receivable is that they are formal agreements where the borrower signs a written promise to repay the lender a definite sum along with interest at a specified maturity date. Promissory notes may or may not require collateral, depending on the borrower's credit risk and lender's requirements.

Step-by-step explanation:

With regard to notes receivable, the correct statement is: The borrower signs a written promise to pay the lender a definite sum at the maturity date, with interest. Notes receivable, also known as promissory notes, are formal agreements where the borrower makes a legally binding commitment to repay the borrowed amount along with interest, possibly at specified intervals, by a certain date. This is contrary to accounts receivable, which are typically less formal and do not usually include a written agreement or interest payments.

Collateral is not always required for notes receivable. The necessity of collateral depends on various factors, including the borrower's credit history, the amount of loan, and the lender's policies. In some cases, borrowers might have to pledge assets as collateral to secure the loan, especially if they pose a higher credit risk.