What needs to be adjusted when dealing with discounted notes receivable?

When dealing with discounted notes receivable, it is essential to subtract the discount from the total of notes receivable to accurately reflect their present value. Discounted notes receivable represent the amount that is less than the face value, as they are sold at a discount to face value prior to maturity. This discount reflects the interest cost of obtaining cash before the note's maturity date.

By subtracting this discount, the accounting records provide an accurate representation of the collectible amount expected from the note. This adjustment is vital for ensuring that the financial statements represent a true and fair view of the entity's financial position, as it accounts for the time value of money. Treating the discounted amount properly ensures that stakeholders have a clear understanding of the actual value of the receivables, conforming with accounting principles such as the matching principle.