Yes you are correct, part of the payments goes to principle and to discount.
how do i record that?
i was told on here earlier that the purchase should be recorded as Note Receivable - AR (full amount due)Discount - (Negetive) AR (discount amount)Cash - Cash (after discount or actual amount paid)
but if i do it this way, then i have a Full Amount due in the a/r
now if i go to place the payment...there is not extra money to place elsewhere
hang on one moment. thanks
The entry above is correct.
ty for confirming
so...how would i record the actual payment received?
You don't have a full amount due in AR, the contra (negative) discount account reduces the note down to cost value.
You would then amortize the discount monthly to reduce the discount and essentially increase the face value.
so the discount is a Sub Account?
thus effecting the Total Note Due?
So the payment received would be recorded as: DR Cash and Credit AR note receivable and also CR Capital gain if the bond was sold at a gain.
yes correct the discount is a sub account.
i think that makes more sense now
Capital Gain would be only if the item is sold
Good deal, glad I could help
was your statement correct above?
right capital gain would be the only item if sold
DR Cash and Credit AR note receivable and also CR Capital gain if the bond was sold at a gain.
Is this more accurate then for a note with a discount??DR CashCR AR note receivable (% of the note purchase price)DR Discount (% of the note purchase price)
DR CashCR AR note receivable (% of the note purchase price)DR Discount (% of the note discount or 1-% of the note purchase price)
second one might be more of what i am understanding...
but is that still 100% accurate?
or did i miss something?
assuming NO SALE OF THE NOTE...just collecting payments
assuming no sale of of the note, just collecting the payments. You would record the interest payments as DR Cash CR interest income.
But you also have to record the amortization on the discount. DR Discount CR Note Discount (Revenue Account) This is what is considered "OID" (original issue discount) under U.S. federal income tax principles.
when do we do that like annually??
note that the discount entry is purely accounting, no cash is involved. You merely recognize the discount as an income or expense item and inrease/decrease the discount to bring the total value of the note up to face value.
yes annually works but if you sold it you would have to do it up to the date of sale. note that to the extent you have OID on the books still any gain you have would be OID to the extent OID is leftover.
OID meaning the discount.
okay...so this makes a little more sense
so we want to record the payments as usual...ignore the discount
then we want to show the discount recovered in a single entry at the end of a period (like a month or year)
perfect...thx for clarifying
No problem, have a great day! :)