When a note receivable has been discounted by a company,
A)an account called discount on notes receivable is used.
B)it will be shown as an asset of the company.
C)it slows the collection process.
D)it may be shown as a contingent liability in the footnotes.

Question

Quizplus · Accepted Answer

When a note receivable is discounted by a company, it means the company has sold the note to a financial institution before its maturity date, usually for less than its face value. The company receives cash immediately, but if the maker of the note fails to pay, the company might have to repay the financial institution. Therefore, this potential obligation is often disclosed as a contingent liability in the footnotes of the company's financial statements.

When a Note Receivable Has Been Discounted by a Company