Entry (a) is made in the cash disbursements journal, and entry (b) in the general journal. This method of entry requires the splitting of the land value into two parts and breaks up what is really a unit transaction by recording it in two places. Because of this, the general journal portion of the entry should be followed by a very full explanation of the entire transaction, in which reference to the partial cash payment should be made. In the cash disbursements journal the only explanation needed will be a reference to the general journal entry.
Second Method.—To bring about a complete record of the land item in one place, the following method is often used:
| (a) Land | 5,000.00 | |
| Investment Trust Co. | 5,000.00 | |
| (b) Investment Trust Co. | 2,000.00 | |
| Cash | 2,000.00 | |
| (c) Investment Trust Co. | 3,000.00 | |
| Mortgage Notes Payable | 3,000.00 |
Entry (a) in the general journal sets up an account with the vendor, the Investment Trust Co. Entry (b) in the cash disbursements journal and entry (c) in the general journal show the cancellation of the liability to the vendor through the payment of cash in the one case and the giving of a mortgage in the other. The net effect of the entries is:
| Land | 5,000.00 | |
| Cash | 2,000.00 | |
| Mortgage Notes Payable | 3,000.00 |
It will be noted that this method sets up a formal account with the vendor—a desirable thing—but that it requires one more entry than the first method.
The other entries recorded in the Journal ought not to give the student any particular difficulty.
CHAPTER XXI
BUSINESS PAPERS—NEGOTIABLE INSTRUMENTS
The books of original entry, i.e., the journals, having been explained, the attention of the student will be directed next to the sources of information on which the entries in the various journals depend. Accordingly, some of the important papers and methods used in business will be discussed, after which further accounting principles and methods will be given adequate treatment.
Use of the Note Receivable.—The purpose of sales is the ultimate conversion of stock-in-trade into cash to provide for the payment of services and for the purchase of commodities for future sale. This conversion of stock-in-trade into money may be immediate, as when goods are sold for cash, or deferred, as when goods are sold on account. In the latter case the conversion is indirect, because the charge against the customer must be collected before conversion is complete.