90. When a Note Drawing Interest is Discounted. The above transaction presupposes that the note is given without interest; but if it were given with interest, the bank would simply add the interest to the principal and deduct the discount from the total. In the case the sum of the principal and interest ($100.00 + .50 = $100.50) is $100.50, and the discount $.50, which would leave $100.00 as the net proceeds. If the amount of the note were larger or the interest was figured for a longer time, it would make a difference. Suppose the amount of the note to be $2,000.00, time 30 days, interest 6% per annum.
| Principal | $2,000.00 |
| Interest 30 days | 10.00 |
| Total | $2,010.00 |
| Less interest on $2,010.00 for 30 days | 10.05 |
| ————— | |
| $1,999.95 |
Since the net amount realized is less than the face of the note, we need not consider the interest earned, but the entry would be:
| Bank | $1,999.95 | |
| Interest and Discount | .05 | |
| Bills Discounted | $2,000.00 |
91. When a Note Drawing Interest is Paid. But suppose Samuel Smart's note is $100.00 for 30 days, with 6% interest, and that the note is kept by us and the money is paid directly to us when due. We shall then receive the interest, in addition to the face of the note, making a total of $100.50. The entry would then be made in the cash book on the debit side, and would be:
| Bills Receivable | $100.00 |
| Interest and Discount | .50 |
| Samuel Smart's note due Oct. 10, paid to-day. | |
92. When a Discounted Note is Not Paid. When we discounted Samuel Smart's note of $100.00 for 30 days without interest at the bank, we were obliged to endorse it, which had the effect of a guarantee of payment. If not paid when due, the amount would be charged to our account at the bank. The note would again come into our possession, and the amount must be debited to some account, the credit being to the bank.
We have previously credited the amount to bills discounted, and our entry is:
| Bills Discounted | $100.00 | |
| Bank | $100.00 | |
| Samuel Smart's note not paid at maturity. | ||
But suppose the transaction to have been the one described in Article 90. The note returned to us is $2,010.00, that being the amount of principal and interest. Our bills receivable and bills discounted accounts show the item as $2,000.00 only. Therefore we must include the $10.00 in our adjusting entries which will be: