ACCOUNTING 1 Notes

Week 1
CHAPTER 1

How Information for External Users is Prepared

4 Statements (public info)

- Income Statement GAAP

- Statement of Stockholders Equity --> Business Transactions
- Balance Sheet
- Statement of cash flow

--> known as 10ks or 10Qs available at www.sec.gov

GAAP - generally accepted accounting principles

|--------------------SEC -------------------|

|-------- PCAOB FASB ----------|

|------ Auditing Standards (GAAS) Accounting Standards (GAAP) ----|

Auditors --------Audits--------> Financial Statements. <---------Prepares-------- Company

What Does GAAP Say?

- To be useful Financial Statements must be relevant and faithful representation of business

transactions
- 4 Enhancing Attributes
- 4 Assumptions
o Time period (I.e., fiscal year 10k; quarterly report 10Q)
o A business entity (I.e. Apple, separate from its owners, creditors)
- 4 Principles
o Recognize revenue when performance obligation to customers is fulfilled, not when
cash is received
o Recognize expenses in the same period as the related revenue, not when cash is paid
(I.e., Matching principle) --> profit
 Immediate recognition if costs incurred do not generate future revenue

Input (Expense/Cost) ---> Business (Profit = Revenue – Expense) ---> Output (Revenue)
Understanding Business and its Transactions

How is a business created?

- Assets (A) = Liabilities (L) + Stockholders’ equity (SE)

o A = what a business owns (generates future benefits)
o L = what a business owes (future sacrifices of benefits)
o SE = owners’ or shareholders’ rights (net worth/assets = A – L)

How does a business operate?

- Changes In Retained Earnings (RE, accumulated profits)

o Revenue = increases in A or decreases in L
o Expense = decreases in A or increases in L

Quick Notes

- Common Stock is similar to a receipt that you give to a person that invests in your business
- Revenue – Expense = Earnings
- Positive net income increases retained earnings
- Dividends reduces retained earnings, which is called earned capital
Week 2 – Journal entries, T Accounts, Trial Balance
Assets

- Cash, Supplies, Land

Liabilities

- Account Payable, Common Stock

Stockholders’ Equity

- Dividends
- Fees Earned(revenue)
- Wages Expenses
- Rent Expenses
- Supplies Expenses
- Utilities Expenses
- Misc. Expenses

Income Statement

Revenue

Fees earned (increases retained earnings +)

Expense
Steps for Analyzing Transactions

- Identify the accounts affects (must be at least TWO accounts) and classify each account as an
asset (A), liability (L), or stockholder’s equity (SE)
- Determine the effect (increase or decrease) on each account
- What is the impact on the accounting equation? (Assets = Liabilities + Stockholder’s Equity must
always be in balance)

A = L + SE

CHAPTER 2  BALANCE AND DEEPER DIVE

The T Account (DC ADE LSER)

- DC
o Debit (DR) : left side of an account
o Credit (CR): right side of an account
o Left-handed Drs. Are Rightly Credible
- ADE: an increase is Debit (decrease is opposite, Credit)
- LSER: an increase is Credit (decrease is opposite, Debit)
 How to create, its contents, and why we use it
FORMAT/LAYOUT

WHY

5 Steps for Making Journal Entries (Double-Entry Accounting)

 Trial Balance
4 steps in Balancing a Trial Balance
Formally record transactions using Journal Entries that follow a debit credit format

Errors in Trial Balance

- Examples of errors
o Total debits do not equal total credits
o Unusual balances (normal balance negative or on the wrong side)
 Always positive
 Balance should always be on normal side (increase side)
o Posted the wrong amount
o Posted the wrong account
- A correcting journal entry is sometimes prepared to correct the trial balance
Week 3 – Unadjusted Trial Balance + Adjusting Entries (Accruals, Deferrals,
Depreciation)

The ending balances for some accounts are outdated at the time of preparing financial statements

- Why outdated?
o Some revenues and expenses may be unrecorded d at the time of preparing financial
statements
 Accruals
 Deferrals
Depreciation

What does GAAP say?

- 2 of 4 principles
o Recognize revenue when performance obligation to customers Is fulfilled, not when
cash is received
o Recognize expense in the same period as the related revenue, not when cash is paid
(i.e. matching principle)  Profit
 When do office supplies contribute to revenue generation?
 When they are used because they are not idle. They are contributing to
the success of the business. When used, not when paid for.
 Purchased office supplies are assets not expenses
 Purchased office supplied become expenses when used.
 Immediate recognition if costs incurred do not generate future revenue

Accrual (Not Cash) Basis of Accounting

Input  Business  Output

Expense/Cost Profit = Revenue – Expense Revenue

Activity 1

1) Revenue not recognized. Account Receivable, 11,980

2) Revenue is recognized. Earn revenue from the 12% interest in a year
a. Interest Income, $1200 x 12% x 1/12 = $12
3) Revenue is recognized, earn $18,050
4) Revenue is not recognized; performance obligation is not fulfilled which is necessary for
generating revenue
5) Revenue is not recognized, $18,300,000 for 80,000 season tickets sold but the game has not
happened yet
6) Revenue is recognized, Game revenue, $18.3M x 1/5 = $3.66M
7) Revenue is recognized, Dell provided the computers and have fulfilled their obligation.

Adjusting Entries

- Accruals
o Record revenue or expense before receiving or paying cash
 Accounts Receivable an asset account
 Accounts Payable is a liability account

Examples of Accrued Revenues

- NetSolutions signed an agreement with Dankner Co. on December 15 to provide services at a

rate of $20 per hour. As of December 31, NetSolutions had provided 25 hours of services. The
revenue will be billed on January 15.
- What adjusting entry should NetSolutions make on Dec 31 (when financial statements are due)?
o Revenue increases on Credit
o Accounts Receivable increases on Debit
o Dec 31 Dr Accounts Receivable (+A) 500

Cr Fees Earned (+R, 25 hrs x $20/hr) 500 (service provided))

A (+500) = L + SE (+500)

- How will financial statements be affected if the adjusting entry is not made on Dec 31?
 o Balance sheet: A understated by 500, RE and SE understated by 500
o Income Statement: R understated by 500, Net Income understated by 500

- Deferrals
o Record revenue or expense after receiving or paying cash
o Unearned Revenue in a liability account
o Prepaid Expense is an asset account

Deferral (Unearned) Revenues Example

- On Dec 1, NetSolutions leased its warehouse and received $360 in rent payment from its
tenants for the upcoming months of Dec, Jan, and Feb
o Liability effected, UNEARNED rent is its title
Dec 1 Dr Cash (+A) 360
Cr Unearned Rent (+L) 360 (defer recognizing rent revenue till fulfilling its
obligation of providing warehouse space for Dec, Jan, Fev)
A (+360) = L (+360) + SE
- What adjusting entry should NetSolutions make on Dec 31 (when financial statement are due)?

Dec 31 Dr Unearned Rent (-L) 120 (360/3, fulfilled the obligation for Dec)

Cr Rent revenue (+R) 120 (service provided, revenue earned)

A = L (120) + SE (+120)

Deferred (Prepaid) Expenses Example

- On Dec 1, NetSolutions paid $2,400 for a 12-month auto insurance. The insurance is effective
starting on Dec 1. Dec 31 is the F/S report date.
- What entry should NetSolutions make on Dec 1?
Dr. Prepaid Insurance (_A) 2,400 (will bring future benefits)
Cr. Cash (-A) 2,400
- What adjusting entry should NetSolutions make on Dec 31 (when financial statements are due)?
Dr. Insurance Expense (+E) 200 (2,400/12) (defer recognizing expense till insurance is
used to support related revenue, match)
 Cr. Prepaid Insurance (-A) 200 (expiration/use of insurance)

- Depreciation
o Expense the cost of equipment as you use it
 PPE or fixed assets: property, plant, and equipment
 Buildings, land, airplanes, train, that have a long life (>1 year)
o Similar to deferred (prepaid) expense (life<1 year)
o Initial Purchase
 Dr. Supplied (+A)
 Cr. Cash (-A)
o Using supplied to help generate related revenue (matching
 Dr. Supplied Expense (+E)
 Cr. Supplies (-A)

Accumulated Depreciation

- XA represents Contra Asset

o A pair: XA (accumulated Depreciation) and A (PP&E)
- PP&E – Gross (A)
_______________________________
Beginning Balance |
Increase | Decrease
____________________|____________
Ending Balance

Activity 2

a. Dr. (-L) SE Expense

i. Cr. (-A) Electricity usage
b.
Current Period Get Ready  Next Period

Ending Balance Beginning Balance

A Dr Dr

L Cr Permanent Accounts Cr
SE Cr Cr

D Dr 0

R Cr Closing Entries 0

E Dr 0
Accruals and Deferrals

Deferrals vs. Accruals

D is for Dollars (before actions) A is for Action (before dollars)

EXAMPLES:

- Prepaid Expense (Asset) - Receivables Revenue

- Unearned Revenue (liability) - Payable Expenses

Adjusting Entries

Deferred Expense  ASSET  PREPAID ASSET

- We paid dollars before the action of incurring the expense

Deferred Revenue  LIABILITY  UNEARNED REVENUE

- We received dollars before the action of earning the revenue (we OWE clients)

Accrued Expense  LIABILITY  ACCOUNT PAYABLE

- Incurred the expense before paying the dollars for it

Accrues Revenue  ASSET  ACCOUNT RECEIVABLE

- Earned revenue before receiving the dollars for it

Accrual Basis of Accounting: Revenue is recognized as its earned and expenses are recorded as they
are incurred
 Equations

Assets = Liability + Equity

Equity = Owners Equity – Dividends + retained earnings

Retaine earnings = revenue – expense

So…

Equity = owners’ equity – dividends + revenue – expenses

And therefore…

Assets = liabilities + owners’ equity – dividends + revenue – expenses

SO…
dividends + expenses + assets = Liabilities + equity + revenue

DEBIT ON RIGHT SIDE, CREDIT ON LEFT SIDE

DEA=LER

Trial Balance

TB – an accounting report showing the closing balances of all general ledger accounts at a point in time

- Checks for errors and make sure both accounts are balances
- Debit and credit totals being equal does NOT mean our trial balance is error free

An easier way to do it to ensure no mistakes, create columns horizontally to represent each journal
entry the problem wants you to make, having a total column on the bottom of each column and at the
end. This will ensure there is equal balance in all aspects.
Overview: (Review for Midterm)

Chapter 1: Understand and Analyze

Chapter 2: T-Accounts, Journal Entries, Trial Balance (TB)

Chapter 3: Unadjusted TB + Adjusted Entries = Adjusted TB, Accruals, Deferrals, Depreciation

Chapter 4: Cycle (Current Period  closing (R,E,D)  next period, Temporary Accounts (BB needs to
reset) and Permanent Accounts (Ending Balance carries over as BB)

Chapter 5: How Is profit created? And Income Statement

WEEK 5 – Chapter 5, How Is Proift Created and Income Statements

Perpetual inventory
- The revenue and the cost recognition happens in medium when a company makes a
purchase or sale
- Purchases and sales are recorded immediately through computerized point-of-sale
systems
Perpetual (computerized point of sale) system
- Record costs immediately at the time of sales
- Used by large retail businesses
-
Freight (shipping terms)

The difference between INPUT and OUTPUT is profit

- Purchase goods (cost)  INPUT
o Cash Purchases
o Purchases on Account
o Purchase Discounts
- Sell goods (revenue)  OUTPUT
o Cash Sales
 o Sales on Account
o Sales Discounts
o Sales Taxes

Perpetual vs. Periodic Inventory System

PERPETUAL
Purchase goods (cost) Sell goods (revenue)
- Cash Purchases - Cash Sales

Cash Purchase effects:

Dr. Inventory (+A)
Cr. Cash (-A)

Cash Sales effects:

Dr. Cash (+A)
Cr. Revenue (+R) @ Selling price MATCHING PRINCIPLE
Dr. Cost of goods sold (+E) @ Purchase cost
Cr. Inventory (-A)

Purchase on account effects:

Dr. Inventory (+A)
Cr. Accounts Payable (+L)

Subsequent Payment effects:

Dr. Accounts Payable (-L)
Cr. Cash (-A)
Sales on account effects:
Dr. Account receivable (+A)
Cr. Sales (+R)
Dr. Cost of goods sold (+E)
Cr. Inventory (-A)

Subsequent receipt of cash effects:

Dr. Cash (+A)
Cr. Accounts Receivable (-A)

What Discount? See Credit Terms

Sellers send buyers invoices as reminders for payment
- 2/10, n/30
o The buyer gets 2% off the full amount owed if payment is made within 1 days of
the invoice date
 An incentive so the buyer pays fast, offering discount so a buyer can pay
within 10 days
o If the buyer does not take the discount, the full invoice amount is due within 30
days
o n/eom: full amount due end of the month in which sales were made

Purchase Discount: Should a Buyer Take it?

- Should a buyer take the discount?
o Credit Terms: 2/10, n/30
o Assume that banks charge a 6% interest for a 360-day-loan
- How much is the payment if the discount is taken?
o 3,000-2,000 x 2% ($60) = $2,940
- How much is saved (in interest terms) by taking the discount?
o 10 days (pas $2,940), 20 days (2% interest), 30 days (Pay $3,000)
o 2% x 360 days/20 days = 2% x 18 = 36% saved > 6% interest rate on loan (cost of
borrowing)
- It would be beneficial to take the discount even if it means that the buyer needs to
borrow money from the bank in order to do so.
Buyer vs. Sellers Perspective

BUYER SELLER
Dr. Inventory (+A)  Dr. Accounts receivable (+A)
Cr. Accounts Payable (+L)  Cr. Sales (+R)

Seller Collects Sales Taxes

- The liability for the sales taxes is incurred when the sale is made
- The seller collects sales taxes on behalf of the taxing authority (state) and hand over the
collected taxes to the state periodically.
- E.g., the seller had a sale of $100, subject to a tax of 6%
- Cash sales, the seller records
o At time of the Sale
 Dr. Cash (+A) 106
 Cr. Sales (+R) 100
 Cr. Sales tax payable (+L) 6 (100x6%)
o At time of handing over taxes
 Dr. Sales tax payable (-L) 6
 Cr. Cash (-A) 6
- Sales on account, the seller records
o At the time of the sale
 Dr. accounts receivable (+A)106
 Cr. Sales 100
 Cr. Sales tax payable

Freight (Shipping Terms)

- FOB = Free on Board
- Ownership transfers at the time of destination
- Revenue Recognition Principle
o When sellers can recognize their revenue, including Shipping Terms
- FOB Shipping Point
o Sellers recognize sales once goods are shipped
o Buyers are responsible for damaged goods during shipping
o Freight is part of inventory cost (an asset) for buyers
 - FOB Destination
o Sellers recognize sales once goods arrive
o Sellers are responsible for damaged goods during shipping
o Freight is selling expenses for shipping

Income Statement: How is Profit Created?

- Two Formats
- Multiple-step format (sub-categories)
o So, categories expense sunder both Selling expense and Administrative Expense

 Advertising Expense: commercial expense, social media expense,

giveaway expense, etc.
- Single-step format
o In this, the categories would not be specified, the total would be added up and
would only go under Selling Expense or Administrative Expense.
- Non-operating items
o Gains or losses from selling PPE
o Interest Revenue

To determine if a business does well, its best to look at the Operating Income
Chapter 6 - Periodic (manual) system

Cash Purchase goods (cost)

- Cash Purchases
o Dr. Inventory (+A)
 Cr. Cash (-A)
This Bold to the other is PERIODIC
Sell goods (revenue)
- Sales
o Dr. Cash or A/R (+A)
 Cr. Sales (+R) @ selling prive
o Dr. Cost of goods sold
 Cr. Inventory (-A)

Periodic (manual) system

- Do not record costs at the time of sales
- Manually calculate and record costs when physical inventory count takes place at the
end of the accounting period
- Used by small retail business’
Physical Inventory: How is COGS Manually Calculated

Beginning Inventory ($40,000) + Purchases ($55,000) – Goods available for sale ($95,000)
So… 40,000 + 55,000 – 35,000 = 60,000
Goods available for sale – Inventory Remaining = Inventory sold
($95,000) -- Ending Inventory ($35,000). = Cost of Goods sold ($60,000)

Ending Inventory
- Determined by physical inventory count that takes place at period end when financial
statements are due
Inventory sold
- Calculated manually at period end
- Record at period end

Cost Flow Assumptions (3 Types)

When identical inventory items with different (per item) purchase costs are mixed in ending
inventory, assume one of the following
- FIFO (first-in, first-out)
- LIFE (last-in, first-one)
- Weighted average cost of units available for sale
o $/# of (Beginning inventory + Purchase)

Beginning Inventory: 0 oranges ($0)

Purchased on 3 dates:
- May 10 @ $9 for 1 orange
- May 18 @ $13 for 1 orange
- May 24 @ $14 for 1 orange
Sold 1 orange for $20 on May 30
May 30 ending inventory is 2 oranges (from physical inventory amount)
Assumption of the cost flow does NOT have to agree with the physical movement of inventory
- Physical movement
o FIFO
- Assumption
o FIFO, LIFO, or weighted average cost (any is OK)

Specific Identification
- Cost flow assumptions are NOT needed when we can identify the cost of each item in
ending inventory
- Specific Identification: used when inventory items can be clearly differentiates, have
high value and low sales volume

Chapter 7 – 3 Types of Investments: Cash + Appendix D (Chpt. 8 is the final one)

Appendix D: Investments

The Purpose of Making Investments

A company may invest in the securities of another company to:
1. Earn a return on idle cash (aka a passive investment)
a. 3 Types of Investments
b. Trading Securities (our focus)
i. Trade stocks to make a profit
ii. Current assets if intend to sell within one year
c. Available for sale
d. Held for maturity
2. Influence the other company’s policies and activities
3. Control the other company’s future
Historical Cost vs Fair Value
Historical Cost
- the acquisition cost at the purchase date
Fair value
- the market value at the measurement date

Accounting for Trading Securities

- Purchases 10 shares of Apple on 11/11/2019 for $260.87 ad classifies the investment as
a trading security (TS)
o Dr. Investment in trading securities(+A) 2,608.70 (historical cost)
 Cr. Cash (-A) 2,608.0
- Apple is trading for #290.04 per share on Dec 31 (fiscal year end)
- Mark-to-market adjusting entry when F/S due
o Cr. Valuation allowance for TS (+A) $291.7
 Cr. Unrealized gain on TS (+R, +SE) $291.7
Balance Sheet
o Investment in TS (Cost) – historical cost $2608.70
o Valuation Allowance for TS – value increase $291.70
o Investment in TS (fair value) $2900.40
- If the stock price drops to $200 on December 21 instead
o Dr. Unrealized loss (+E, -SE) $608.7
 Cr. Valuation allowance for TS (-A) $608.7

Why do we use bank accounts to store cash?

- Advantages:
o Lower risk: reduce the amount of cash on hand
o Accurate reporting: bank provide an independent record of cash transactions
(bank statement)
- A form of internal control
o Internal controls are rules and procedures implemented by a company to ensure
the integrity of financial and accounting information, promote accountability,
and prevent fraud
 E.g., course policy in the syllabus ensures fairness in grading
  The Sarbanes-Oxley Act (SOX) requires publicly traded companies to
maintain effective internal controls
Use Bank reconciliation to Control Cash
- Cash balance per bank = Cash balance on my book
o Power Networking should determine the reason for the difference in these two
amounts (two different ending balances between bank statement and Company
statement)
- A bank reconciliation explains the difference
o Timing differences
 The company recorded but the bank has not
 Outstanding Checks (cash hasn’t left the bank yet)
 Deposits in Transit (cash hasn’t made it to the bank yet)
 The bank recorded but the company has not (does not know the
information until the bank statement is received)
 Bank Service Charges
 Interest Earned
 NSF (non-sufficient funds) Checks (bad checks from customers)
 Collections of notes receivable (from the company’s customers,
chapter 8)
o Errors in recording transactions
 Incorrect posting, made by either the company or the bank
Step 1: The Company Section: Company Balance + Adjustments  Adjusted Balance 1
- Timing difference: The bank recorded but the company has not
Step 2: The Bank Section: Bank balance + Adjustments  Adjusted Balance 2
- Timing difference: The company recorded but the bank has not
Step 3: Adjusted Balance.1 = Adjusted Balance 2
Cash and Cash Equivalents
- Cash
o Money or any instrument that banks will accept for deposit
 Money, Checks, Money orders, Bank Drafts
- Cash equivalents
o Highly liquid investments with maturities of three months or less at the date of
purchase
o Investment value is stable (not trading securities in App. D)
 Certificates of Deposit, Security Bills

Chapter 8
Classification of Receivables
- Receivables represent all money claims against other entities, including people,
companies, and other organizations  Assets
o Accounts (trade) receivable claims against customers
 Normally collected within 30 or 60 days  Current assets
o Note receivable: more formal than accounts receivable (A/R)
 A customers written promise to pay merchandise or service with a
specified amount, due date, and interest rate
 Credit periods of more than 60 days
o Other receivables: reported separately on the balance sheet
 Can be current (expected to be collected < 1 year) or non-current
 E.g., interest receivable

Accounting for Uncollectible Accounts Receivables

- The direct write-off method (non-GAAP, not tested)
- The allowance method (required by GAAP, our focus)
o Estimate the receivable that is uncollectable and record a bad debt expense at
the end of the accounting period (as an adjusting entry) Why?
 Matching principle: recognize the cost of generating revenue in the same
period as the related revenue
o Dr. Bad debt expense (+E, -SE)
 Cr. Allowance for doubtful accounts (+XA, -A)
 o Bad debt expense is also called uncollectible accounts expense, or doubtful
accounts expense  classified as selling expense (part of operating expense) in
Income Statement
o ADA (Allowance for doubtful accounts, XA) versus Accounts Receivable (A)
- The allowance method (cont.)
o Dr. Bad debt expense (+E, -SE)
 Cr. Allowance for doubtful accounts (+XA, -A)
Balance Sheet Presentation:
Accounts Receivable, gross (A)
-Allowance for doubtful accounts (XA)
Accounts receivable, net (A-XA)
o Dr. Depreciation expense (+E, -SE)
 Cr. Accumulated Depreciation (+XA, -A)
Balance Sheet Presentation:
PPE, gross (A)
-Accumulated depreciation (XA)
PPE, net (A – XA)

The Allowance Method: Estimate  Write-off  Recovery

- Estimate bad debt expense: unclear who will not pay
o Dr. Bad debt expense (+E, matching to related sales)
 Cr. ADA (+XA, general, not tied to specific customers)
- Actual write-off A/R: later it becomes clear who will not pay
o Dr. ADA (-XA, general, remove the actual from the estimate)
 Cr. A/R (-A, tied to specific customers, actual)
- Recovery of prior write-off: receive partial or full payment from who didn’t pay
o Reverse prior write-off for the amount received
 Dr. A/R (+A, tied to specific customers, reinstate A/R)
 Cr. ADA (+XA, general)
o Record the receipt of payment
 Dr. Cash (+A)
 Cr. A/R (-A, tied to specific customers)
Example 1 the Allowance Method
- Estimate the bad debt expense: At the end o the year, Decker’s estimated bad debt
expense associated with the sales made in the current year to be $6,000 and made the
following adjusting entry:
o Dr. Bad debt expense (+E, -SE) 6,000
 Cr. Allowance for doubtful account (ADA) (+XA, -A) 6000
- No customer specific accounts are used because Decker’s doesn’t know which specific
customers will not pay (hence the estimate)
- I/S: bad debt expense (classified as selling expense) increases by $6,000
- B/S: report A/R net (net realizable value = A/R gross – ADA)
o The increase of 6000 in ADA reduced A/R net by 6000

- Actual write-off: Decker’s later found out for the sales made last year, a $4,200 account
receivable from D.L. Ross will be uncollectible
o Dr. ADA (-XA, +A) 4200
 Cr. A/R – D.L. Ross (-A) 4200
o B/S: A (4200+4200) = L + SE, no impact on A
- Recovery: D.L. Ross paid $2,000 for the receivables that were previously written off
($4,200)
o Reverse prior write off for the amount received
 Dr. A/R – D.L Ross (+A) 2000, reinstating A/R
 Cr. ADA (+XA, -A) 2000
o Record the receipt of payment
 Dr. Cash (+A) 2000
 Cr. A/R – D.L. Ross (-A0 2000
The Allowance Method: Estimating Uncollectible
- Estimate Bad Debt Expense as an adjusting entry at the end of the accounting period
o Dr. Bad debt expense (+E, -SE)
 Cr. Allowance for doubtful account (+XA, =A)
- Three methods
o Percent of sales method
 The percentage of credit sales method bases bad debt expense on the
historical percentage of credit sales that ultimately result in bad debts
o Analysis of receivables method
 Uses the balance sheet, column: Accounts Receivable

Notes Receivable
- A promissory note is a written promise to pay the face amount, usually with interest, on
demand or at a date in the future
o Face amount (principal amount) $2000
o The interest rate (annual rate): 10% (over 360 days)
o The term of a note: due date-issue date = June 12 – March 16 = 90 days
o Payment due on June 14:2000 (principal) + 50 (interest = 10%x2000x90/360)