When you calculate the present value of the note payable, it’s the present value of a single amount. The factor at the intersection of 8 percent and five years in the present value of an annuity of $1 table is 3.9927. The present value of the interest is $4,791 (rounded) ($1,200 x 3.9927).

How do you find the present value of a non interest bearing note?

The present value of the non interest bearing note payable is calculated using the present value formula, PV = FV / (1 + i%)n, where FV = future value, in this case 8,000, i% = the interest rate, say 10% and n= the term in years, in this case 1 year.

What is non interest bearing notes receivable?

A note receivable on which interest rate is not specified but the total interest amount is deducted on advance is called non-interest bearing notes receivable.

What is the maturity value of a non interest bearing note?

The maturity value of a non-interest-bearing note is the same as its face value. A simple discount note does not involve a bank discount. Bank discount on a simple discount note is based on the amount a borrower receives and not what he pays back.

Do we recognize interest on noninterest-bearing note?

Definition: A noninterest-bearing note is a note or bond with no stated interest rate on its face. Contrary to the name, noninterest-bearing notes do actually pay interest. The interest is implied in the face value of the note.

What is the difference between an interest bearing note and a non-interest bearing note?

In this lesson, you learned how to account for interest-bearing and non-interest bearing notes. The big difference between the two is that for non-interest bearing notes you need to calculate how much the implied interest is and subtract that from the note payable due on the maturity date.

Do we recognize interest on noninterest bearing note?

Are notes payable Non interest bearing?

A non-interest bearing note payable is a note in which the interest is deducted from the face value of the note when it is issued. It is called non-interest bearing because no interest rate is stated on the note. The interest deducted in advance is the bank discount.

What will be the difference in recording a non interest bearing note from an interest bearing note?

The big difference between the two is that for non-interest bearing notes you need to calculate how much the implied interest is and subtract that from the note payable due on the maturity date.

What are non interest bearing accounts?

The term “noninterest-bearing transaction account” includes a traditional checking or demand deposit account on which the insured depository institution pays no interest. For more information about FDIC insurance coverage, visit

Can note payable be long-term?

Unlike accounts payable, which is considered a short-term liability, notes payable can be classified as either a short-term or long-term liability, depending on the repayment terms indicated in the promissory note.

What is the difference between an interest bearing note and a non interest bearing note?

How do you find the effective interest rate on a non interest bearing note?

Divide the note’s face value buy its discounted price. For example, if you pay $4,000 for a $6,500 non-interest bearing note that matures in five years, divide $6,500 by $4,000, giving 1.625. Divide 1 by the number of years until the bond matures.

Why use a non interest bearing account?

Non-interest-bearing accounts are often a good option for people who are new to banking, such as children. They have enough services to help a new customer get acclimated to the process of banking without being too demanding.

What is a discount as it relates to zero interest bearing notes payable?

What is a discount as it relates to zero-interest-bearing notes payable? The discount represents the lender’s costs to underwrite the note. The discount represents the credit quality of the borrower. The discount represents the cost of borrowing.