Problem 1. Assume that a customer, James Robbins, buys $1,000 worth of goods, paying $300 cash, giving a note for $500 and leaving the balance on open account.
The following entries should be made:
| (a) James Robbins | 1,000.00 | ||
| Sales | 1,000.00 | ||
| (b) Cash | 300.00 | ||
| James Robbins | 300.00 | ||
| (c) Notes Receivable | 500.00 | ||
| James Robbins | 500.00 | ||
It will be noted that three journals are involved. Entry (a) is recorded in the sales journal; entry (b) in the cash receipts journal; and entry (c) in the general journal. The net effect of the three entries is:
| James Robbins | 200.00 | |
| Cash | 300.00 | |
| Notes Receivable | 500.00 | |
| Sales | 1,000.00 |
Because special journals are used, however, the transaction must be split up as indicated above.
Problem 2. Assume that the business purchases from the Investment Trust Co. a building site valued at $5,000, paying for it $2,000 cash and a note for the balance supported by a mortgage.
Two methods are used to record this transaction, neither having any special advantage over the other.
First Method:
| (a) Land | 2,000.00 | |
| Cash | 2,000.00 | |
| (b) Land | 3,000.00 | |
| Mortgage Notes Payable | 3,000.00 |