A type of financial asset that appears on the asset-side of an entity’s balance sheet to reflect the value of notes (promissory notes) it is owed, particularly with short to mid-term maturities. The entity expects to receive payment for these notes over a span of one year or more. On an entity’s books of account, notes receivable may form a large chunk of its current assets, that are expected to generate cash flows in the immediate future, and hence have to be properly managed as part of the broader cash flow management.

Notes receivable can be created when a selling entity requests a customer to replace an accounts receivable (A/Rs) with a promissory note in case the customer would need additional time to settle a past-due account. A promissory note constitutes a written promise to pay a certain sum, usually including interest, at a future date. If due within a year, the note is classified as a current asset. For maturities beyond a year, the note is classified as a long-term asset.