Because the borrower is NOT the maker of the note, there should be a previous transaction
to record the receipt of the promissory note from the customer.
EXAMPLE: Received P150,000 10% 60-day promissory note from MNG Trading for services
rendered on May 11.
Let's assume that on June 2, before the maturity date of the note (July 10), the company
needs cash. One way of raising the needed cash is to discount promissory notes of customers with
the bank.
EXAMPLE: Discounted MNG Trading's P150,000 10% 60-day promissory note with BPI at 12%
Note: You need to do the following computations to record the proceeds from discounting of customer's
note
Interest income is the interest stated in the promissory note
I = Prt P = principal or face value of the note
r = interest rate stated in the note
t = term of the note
I 2500
OR
If the customer dishonored the note and the bank charged protest fees of P500
s transaction
of customer's
discounting