85. When a note is received by us or we give our note to another, it is necessary to make a journal entry in order that there may be a proper record of the transaction on our books. Careful study is sometimes necessary to determine just how the entry should be made, and the following illustrations will serve as a guide.
86. When Received. When we receive a note, we debit bills receivable and credit the maker—that is, the person who gives us the note.
We receive a note from Samuel Smart for $100.00 payable in 30 days. The journal entry is:
| Bills Receivable | $100.00 | |
| Samuel Smart | $100.00 | |
| 30-day note dated Sept. 10 |
87. When Paid. When this note is paid, we debit cash and credit bills receivable. The entry is made in the cash book on the debit side which debits cash and credits bills receivable.
| Bills Receivable | Samuel Smart's note | $100.00 |
| due Oct. 10th |
88. When Collected by Bank. Perhaps the note was collected through our bank; in that case, the bank, instead of sending us the cash, will credit the amount to our account. The bank may, also, charge a small fee for collecting the money; consequently the amount placed to our credit will be the sum collected, less their fee. The entry in the journal would then be:
| Bank | $99.85 | |
| Interest and Discount | .15 | |
| Bills Receivable | $100.00 | |
| Smart's note due Oct. 10th | ||
| Collected by bank. |
89. When Discounted. At the time we received Samuel Smart's note, we may have needed the money for immediate use in our business. We would then take the note to the bank, endorse it payable to the bank, when they would discount it, giving us credit for the net proceeds. Since the money is advanced to us, the bank would charge us interest for its use, which amount would be deducted from the whole amount, leaving the net proceeds. This amount would then be available for immediate use. The note is then the property of the bank; it has gone out of our possession and we have received the cash. The note is not paid, and in discounting it we have created a liability to the bank. Remembering that one of the functions of bookkeeping is to exhibit the true nature of our assets and liabilities, we open a Bills Discounted account in the ledger. The entry is:
| Bank | $99.50 | |
| Interest | .50 | |
| Bills Discounted | $100.00 | |
| Discounted Smart's note due Oct. 10th. |