CHAPTER L
ACCOUNTS CURRENT
Definition.—An account current in its broadest sense is an account of current transactions. In a technical sense, it is an open personal account, one with an outstanding balance. Frequently accounts are allowed to run on between two persons, recording transaction after transaction with partial or full settlement at times but with no intention of closing the account. A principal may have constant dealings with his agent or representative, making periodical payments on account or making remittances to be used as needed by the agent. The agent may make purchases for the account of his principal, paying the bill out of his own funds. He may use in his own transactions any surplus funds of the principal in his possession. An account showing transactions of these various kinds is an account current. The customers’ accounts in brokerage houses and the accounts between banks—banks and their correspondents—are other examples of accounts current.
Interest on Balances.—In handling accounts current between banks and in brokerage houses, it is the practice to charge the account with interest on the debit balances and to credit it with interest on the credit balances. It was formerly the practice in some lines of trade to charge interest on all overdue customers’ accounts. Frequently today invoices carry a statement to that effect, although the policy is not often enforced through fear of loss of patronage.
Joint Venture Accounts.—In the case of joint ventures discussed in [Chapter XLIX], a condition analogous to this was mentioned where the joint account was charged and the contributing partners’ accounts were credited with interest, while the managing partner was charged and the joint account credited with interest on all joint funds retained in his possession.
Partners’ Accounts and the Account Current.—Occasionally, also, in partnership adjustments at the close of a fiscal period, the agreement may require the business, i.e., the partnership, to allow each partner credit for interest on his investments and charge him with interest on his withdrawals. Each partner’s account is treated very much as an account current of the business when such adjustments are prescribed.
Illustration of Account Current.—Thus, while the old account current as formerly understood and applied to the ordinary customer and creditor relationship is now very seldom encountered, the principle of it is met with frequently enough to demand explanation and illustration. No special form is necessary for the stating of an account current; the interest calculations on the various balances can be made outside the account and only the net result be embodied in the account. A form of account is shown in [Form 45], however, which exhibits all necessary data on its face. Take the following account on which 5% interest is to be charged and allowed:
| B. I. Perkins, Current Account | |||
| 19— | 19— | ||
| July 4 Cash | 1,250.00 | June 4 Balance | 600.00 |
| Aug. 11 Note 60 da., no int. | 1,500.00 | July 4 Mdse. n/30 | 1,400.00 |
| Nov. 11 Cash | 1,000.00 | Aug. 3 Mdse. n/30 | 1,000.00 |
| Dec. 7 Cash | 400.00 | Oct. 2 Mdse. | 2,100.00 |
| 10 Rtd. Goods of Dec. 4 | 50.00 | Dec. 4 Mdse. | 800.00 |
Form 45. Form of Adjusted Account Current
Adjusting the Account Current.—Adjustment of such accounts is usually made periodically. Referring to the illustration shown in [Form 45], the interest calculation is made counting the exact number of days from each “date of value” to and including December 31. Interest is figured, for the sake of ease of calculation, on a 360-day basis. A 365-day basis would be more accurate and this is often done on current accounts between banks. The “date of value” is the date from which interest may be equitably charged or allowed. For example, in the above account, the credit for merchandise purchased on July 4, but with a credit allowance of 30 days, may not equitably be allowed till 30 days thereafter, or August 3. On the debit side, the note for $1,500 dated August 11, at 60 days with no interest, cannot be equitably counted until it comes due, i.e., on October 10. Similarly, the “date of value” on December 10, for the goods returned of the transaction of December 4, must be reckoned as of the same date as the original transaction, for only a portion of the full credit set up is allowed to remain.