101. When We Renew a Note. When this note is due, we find it inconvenient to pay, and give a new note for 30 days, adding the interest now due to the face of the original note. The amount of the new note is $100.50, and the entry is:

Interest and Discount$.50
Bills Payable 100.00
Bills Payable $100.50
New note given Michigan Grocer Co. to renew note due Oct. 10, $100.00, interest $.50, 30 days, with interest.

102. When We Renew Our Discounted Note. When our note given to the bank is due, we find it inconvenient to pay the entire amount. We give the bank a check for $50.00, and a new note at 30 days for the balance. The bank always collects interest in advance, so we shall be obliged to give them our note for $50.00 plus the interest, or $50.25. In effect, the bank discounts our note for $50.25, the proceeds, $50.00, paying the balance of our note now due. The entry is:

Bills Payable$100.00
Interest and Discount.25
Bank $50.00
Bills Payable 50.25
Gave check for $50.00 to apply on note due at bank to day.
Discounted new note for $50.25, payable in 30 days.

JOURNALIZING DRAFTS

103. When a draft has been accepted, it should be treated the same as any other form of bill receivable or bill payable. If we make a draft on a customer, which he accepts, it becomes a bill receivable. If we accept a draft drawn on us, it becomes a bill payable.

Sight drafts are frequently made use of as a convenient means of collecting an account. Such drafts are taken to our bank for collection, but they do not give us credit for the amount until the draft is paid. Drafts of this kind, which are placed with the bank for collection only, are not treated as bills receivable, as we do not credit the account of the one on whom it is drawn until payment is received.

104. When Our Sight Draft is Paid. We draw on Samuel Smart at sight for $50.00 through our bank. When paid, we receive credit at the bank for the amount, less collection charges. The entry in our journal is:

Bank$49.90
Interest and Discount.10
Samuel Smart $50.00
Paid sight draft