So we've talked about accounts receivable. Let's talk about a few different types of receivables. So receivables, this is a keyword. Whenever we see the word receivables, we know that we're talking about assets. Okay. This means that it's an asset account. It represents money owed to the company. Okay. So the first one, accounts receivable. We've talked about accounts receivable, so let's start here just to get our groundwork in. So accounts receivable, this is amounts owed to the company from customers. Okay? This is just general day-to-day selling stuff to customers and giving them some time to pay us back. Okay?
Simple journal entry. On April 1st, the company sells $12,000 worth of goods on account to a customer. When you see "on account," that's when we're talking about we're going to receive the money later. We gave them the goods now, but they're going to pay us later. So what we receive, the debit in this journal entry is accounts receivable for $12,000. Because this is an asset that at some future date, we're going to receive $12,000. And the credit, well, we sold $12,000 worth of goods. Well, we earned revenue. Right? We did our end of the bargain, so we earned some revenue. So we'll credit revenue in this case for that $12,000, then we would see our assets going up by $12,000 in our AR, and our revenue would increase our equity by $12,000. So pretty straightforward, we've dealt with accounts receivable before.
Let's go on to notes receivable. So notes receivable, well this is still amounts owed to the company, right? This is still very similar to an account receivable, except these are going to have interest. Okay? When there's a note receivable, they're going to pay interest as well. Generally, when we have a note receivable, it's going to be for a little more time. We can expect an account receivable to be paid off within 1 to 3 months. While a note receivable, maybe it'll last 3 months to a year. Sometimes we have long-term notes receivable where we loan out money for a long time. So the big deal here is with the notes receivables, we have interest, okay? And notes receivable, they're accompanied by this formal written contract, okay? So that's the difference. An accounts receivable, it's pretty standard, okay, you're going to pay us in a week, you're going to pay us in a month. This is more formal, right? There's going to be a contract with an interest rate on it, right? In general, it's just going to be more formal of a contract. In the end, it's still money owed to the company.
Let's check it out. On April 1st, the company sells $12,000 worth of goods to a customer. On April 30th, the customer calls to let the company know that she will not be able to pay on time. However, she offers this 90-day 6% note in the same amount. So here is the note receivable right there, right? This lets us know it's a note receivable because we're going to be receiving some money in the future and it's got an interest rate. Generally, with notes receivable, we're going to see that the principal, which is the amount that we loan them, the $12,000 in this case plus the interest are due upon maturity. Okay. So let's say this is a 90-day note, that means we're going to be paid in 90 days and on that 90th day, they're going to pay us the $12,000 principal plus the interest that we've earned over those 90 days. Okay?
But when we first, when we first receive the note receivable, when the customer offers it to us, we make a pretty simple entry here. Notice that at first, the company sold $12,000 worth of goods to a customer. So at first, we would have made some journal entry like we did above, right, where we debited accounts receivable and credited revenue just like we did above. But then it's telling us that the customer wasn't able to pay us right away. So instead of having an account receivable, what's going to end up happening is we're going to have a note receivable. So we would debit notes receivable for the $12,000 because now we have a note receivable in the amount of $12,000 and we're going to credit the account receivable, right? Because previously, they had owed us this money already on the 1st century, right? They had owed us this money as an account receivable and then they said well I can't pay you right away, so take this note receivable instead. So they're not going to pay us the $12,000 through an account receivable anymore, now we're going to receive that $12,000 through a note receivable. So we have to credit accounts receivable to get rid of the account receivable and that's what we'll do here. We'll credit for $12,000, and you'll notice that the debit to accounts receivable and the credit to the account receivable gets rid of it and all that's left is the note receivable and the revenue. Right? So we saw that the AR went up by $12,000 in that first one and then down by $12,000, but then we had the note receivable and our note receivable go up by $12,000, and then our equity. Right? We still have that revenue in the first entry for $12,000. So there you go. It stays balanced. Okay.
So, well, let's go ahead and just finish these off real quick. We've got a couple more here. Those are the two main ones. You're going to spend most of your time focused on accounts receivable and a little more details about accounts receivable up here. You might still learn a little more details about notes receivable and how to calculate interest and all that. And then these are just some other receivables that you might see. So with the note receivable, you'll see that there's interest receivable, right? And this is when you've earned interest, there's interest that has been earned but not paid yet, right? We haven't received the cash from the interest, right? The time has passed where we earn the interest but we haven't received it yet. So we would have interest receivable or dividend receivable, the same kind of idea. Where a dividend is earned, this would be that we own stock in a company, and that company says, hey, we're going to pay a dividend. When they say they're going to pay a dividend, we have a dividend receivable, but it might take them a little bit of time to pay us. So they haven't paid us yet, but we have that receivable until we get the money, from that company. Cool?
So another way we can break up receivables into is this idea of trade receivables and non-trade receivables. Pretty easy. Trade receivables, well, they come up in the normal course of business like you see here, and they generally include our accounts receivable and some notes receivable. I'm going to write that one out. Notes receivable, okay? That would be notes receivable that we get from customers. Something kind of like in our example above where maybe a customer had difficulty paying us and they'll pay us in the future. Compare that to a non-trade receivable, well, these do not arise from the normal course of business, okay? They do not arise from the normal course of business. This could be a cash advance to an employee. Sometimes when employees work on commission, we might just advance them cash just so they have a steady paycheck. Well, these are non-trade receivables. This doesn't have to do with our core business and sometimes we just have extra cash, right? We might just have some extra cash that we loan out. We're not in the business of loaning. We're not a bank, right? It could just be some company that has some extra cash and they're loaning it out to make some money, right? So that's non-trade. They're not in the business of buying and selling loans. That's just something they're doing with their extra cash. Cool? Alright. Let's go ahead and move on to the next video.
