FAR Notes Receivable · Updated November 2026
A Note Says 0% Interest. Does That Really Mean No Interest?
A zero stated rate does not necessarily mean the financing has zero economic interest.
Noninterest-bearing note
A long-term note may state no explicit interest rate, but financing economics can still be embedded in the face amount.
Initial measurement
The note may be recorded at present value using an appropriate market rate under applicable guidance.
Discount
The difference between face amount and present value can be recorded as a discount.
Over time
The discount is amortized into interest income using the applicable interest method, causing carrying amount to rise toward face value.
The takeaway
Zero stated interest does not necessarily mean zero economic interest.
Related Summit guides
FAQ
Does the note eventually reach face value?
Generally yes.
Does interest income equal cash received each period?
Not necessarily.
Why use present value?
To separate financing economics from the nominal future payment.