How to Calculate the Maturity Value of Notes

A note receivable is a promissory note that grants its holder, or payee, the note's maturity value at the note's maturity date. The note obligates its maker to pay an agreed-to amount, which may be the note's face amount or the face amount plus interest, at a certain future date. The maker may also be obligated to pay a penalty if the payment is not made on the agreed-to date.

The origin stories of notes are many. For instance, the note may originate with funds borrowed from a bank or result from an order of raw materials delivered by a supplier.

Note Maturity Date

A promissory note matures on the day that it is legally due. In most states, a note matures when the time stated in the note expires. In the event that date falls on a holiday or Sunday, the note may mature on the day before or the day after the stipulated maturity date as determined by state law.

In some states, the note's maker is granted a grace period – a three-day period following the note's maturity – during which the note can be paid without penalty.

Read More:Forms of Promissory Notes

Note Maturity Value

On the note's maturity date, the note's maker must pay the note's maturity value according to the promissory note. If the note is not an interest-bearing note, the maturity value is the note's face value or principal. If, however, the note is an interest-bearing note, its maturity value is the amount due at maturity, which is equal to the note's face value plus interest. That interest is a factor of the note's duration, its dollar amount and an agreed-to interest rate.

Non-Interest Bearing Note

Here's an example of maturity value with a non-interest-bearing note: John Smith borrows $1,000 from his bank and secures the loan with $1,000 a non-interest-bearing note. The bank pays Smith the maturity value of the note of $1,000, less the 12 percent interest on that amount from the day of the loan to the day of maturity or 60 days, which is equal to $1,000 multiplied by 12 percent, or $120, which is then multiplied by 60/360, or 16.7 percent for interest due of $167.

So, Smith receives $833 at the time of the loan. At the note's maturity, Mr. Smith will pay the bank $1,000.

Interest-Bearing Note

John Smith borrows $1,000 from his bank and secures the loan with a 60-day, $1,000 12 percent interest-bearing note. At the note's signing, the bank pays Mr. Smith the proceeds of the note, or $1,000. Sixty days later when the note matures, Mr. Smith will pay the bank $1,167, which equals the $1,000 principle plus $167 interest.

Financial Statement Treatment of Note

Assuming that the note is due ​within 12 months​, the note's holder records the debt as a current asset on the balance sheet. If the note's maturity date is ​greater than 12 months​ from the day the note's maker signed the promissory note, the debt is recorded as a non-current asset on the balance sheet.

If the note bears interest, that interest is documented on the lender's income statement as revenue at the time that it's paid. In contrast, the borrower – the note's maker – documents the note as a current liability if it's due in ​12 months or less​. If the note matures more than 12 months in the future, the borrower treats the note as a long-term liability.

For an interest-bearing note, the borrower will record the interest in the income statement as an expense at the time it's paid.

Read More:Promissory Note Requirements