Unit 2: accounting for receivables introduction

Determining the Maturity Date (Due Date)

The date a note is to be paid is called the due date or maturity date. The period of time between the issuance date and the due date of a short-term note may be stated in either days or months.

When the life of a note is expressed in terms of months, the due date is found by counting the months from the date of issue. For example, the maturity date of a 3-month note dated may 1- Is August 1 a note drawn on the last day of a month matures on the last day of a subsequent month, that is, a July 31 note due in 2 months matures on September 30.

When the due date is stated in terms of days, it is necessary to count the exact number of days to determine the maturity date. In counting, the date the note is issued is omitted but the due date is included. For example, the maturity date of a 90-day note dated March 16 is computed as follows:

Term of the note - - - - - - - - - - - - - - - - - - - - - - 90
March (days) _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ 31
Date of note _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ 16 15
Number of days remaining - - - - - - - - - - - - - - - - 75
April (days) - - - - - - - - - - - - -- - - - - - - - - - - - - - 30
45
May (days)- - - - - - - - - - - - - - - - - - - - - - - - - - - - 31
Maturity date, June - - - - - -- - - - - - - - - - - - - - - - 14



Computing Interest

A note that provides for payment of interest for the period between the issuance date and the maturity date is called an interest-bearing note. If a note makes no provision for interest, it is said to be non-interest bearing note.

T

Face value
of Note


Time in Terms of one – year


X


Interest


=


Annual Interest Rate


X

he basic formula for computing interest on an interest-bearing note is:

The interest rate specified on the note is an annual rate of interest. The time factor in the computation above expresses the fraction of a year that the note is outstanding. When the maturity dated is stated in days, the time factor is frequently the number of days divided by 360. When the due date is stated in months, the time factor is the number of months divided by 12. The computation of interest is shown below:

Terms of note Interest computation
Face x Rate x Time = Interest
Br. 730, 18%, 120 days 730 x18% x 120/360 = Br. 43.80
Br. 1,000, 15%, 6 months 1000 x 15% x 6/12 = 75.00
Br 2,000, 12%, 1 year’s 2000 x 12% x 1/1 = 240.00