1) A promissory note is a written promise by a maker to pay a sum of money to a payee. 2) A promissory note specifies the principal, interest rate, and maturity date. Interest is calculated on the principal based on the interest rate and time. 3) At maturity, the maker must pay the payee the principal plus any accumulated interest.

1. LESSON 20-1
Promissory Notes
CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning

2. 2
USES OF PROMISSORY NOTES
1. Number
4. Time of a note
page 589
2. Date of a note
3. Payee
5. Principle
8. Maker
6. Interest rate
CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning
7. Maturity date
LESSON 20-1

3. 3
INTEREST ON PROMISSORY NOTES
page 590
Interest for One Year
Principal
×
Interest
Rate
$20,000.00
×
6%
×
Time in
Years
=
Interest for
One Year
×
1
=
$1,200.00
Interest for Fraction of Year
Principal
×
Interest
Rate
$20,000.00
×
6%
Time as
×
=
Fraction of
Year
90
×
360
CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning
=
Interest for
Fraction of
Year
$300.00
LESSON 20-1

4. 4
INTEREST ON PROMISSORY NOTES
page 590
Maturity Value
Principal
+
Interest
=
Maturity
Value
$20,000.00
+
$300.00
=
$20,300.00
CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning
LESSON 20-1

5. MATURITY DATE OF PROMISSORY
NOTES
5
page 591
May 18, 90-Day Note
May18–May 31
13 days
June
30 days
July
31 days
August 1–August 16
1
16 days
Total
2
3
4
90 days
1. Subtract the date of the note from the number of days in
the first month.
2. Add 30 days for June.
3. Add 31 days for July.
4. Add only 16 days in August.
CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning
LESSON 20-1

6. 6
TERMS REVIEW







number of a note
date of a note
payee of a note
time of a note
principal of a note
interest rate of a note
maturity date of a note
page 592






maker of a note
promissory note
creditor
notes payable
interest
maturity value
CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning
LESSON 20-1

7. 6
TERMS REVIEW







number of a note
date of a note
payee of a note
time of a note
principal of a note
interest rate of a note
maturity date of a note
page 592






maker of a note
promissory note
creditor
notes payable
interest
maturity value
CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning
LESSON 20-1