out in time, the process will be slow and at 

 the end of the year it will be nearly as valu- 

 able as now. The account is debited because 

 it assumes responsibility for a certain amount 

 of the firm's capital, though no actual money 

 is paid to Gordon for it (see CAPITAL). 



Bills Receivable always refers to promissory 

 notes owed to the business by outsiders, and 

 its opposite, Bills Payable, to notes which the 

 business owes. Because people speak of owing 

 a bill whenever they have purchased on 

 account, beginners at bookkeeping sometimes 

 confuse Bills Payable and Bills Receivable 

 with Accounts Payable and Accounts Receiv- 

 able. To avoid this error it is only necessary 

 to remember that simple debts are accounts 



just as completely as though, it had been paid 

 with money. Therefore, when a note is 

 received Bills Receivable is debited and the 

 payer credited, exactly as if he had given cash. 

 When the note is paid, Bills Receivable is 

 credited, for it is released from its responsi- 

 bility for assets of the business. 



Bills and Accounts Payable are treated 

 similarly. Thus if we pay an account with a 

 note we debit the account, and credit Bills 

 Payable for having conferred a benefit on the 

 business. When we pay the note we debit 

 Bills Payable and credit the account which 

 settled it. For example, if an old note is paid 

 partly in cash and partly with a new note, the 

 journal entry might be as follows: 



Bills Payable (note of Dec. 7 to N. W. Hillis) 

 Interest (on above) 



Cash 



Bills Payable (new note of this date) 



4000 

 120 



1500 

 2620 



and only notes and accepted drafts or bills 

 of exchange are bills. 



It is sometimes difficult for beginners to 

 remember when to debit Bills and Accounts 

 Receivable and their opposites, and when to 

 credit them. Accounts Receivable bears the 

 same relation to accounts with individuals 

 who owe money to the business that Mer- 

 chandise does to the different varieties of 

 goods, such as shoes and groceries. That is, 

 unless it is worth while to open a separate 

 account for an individual, his debts are 

 grouped with those of other customers under 

 the general heading Accounts Receivable, 

 which is to be debited exactly as the indi- 

 vidual accounts would be. Bills Receivable, 

 on the contrary, represents an asset which 

 resembles Cash more closely than it does a 

 personal account. This is because in law an 

 account paid with a promissory note is settled, 

 so far as the showing on the books is concerned, 



The whole matter may be summed up by 

 saying that we can never debit an account 

 which we owe or a note which we owe, 

 because the word means he owes, and we can 

 never credit an account or a note representing 

 money for which we trust another, because 

 credit means he entrusts. When an account 

 or bills payable ceases to represent what we 

 owe, then we debit it, and when an account 

 or bills receivable no longer shows that for 

 which we have trusted others, then we credit it. 

 A bill receivable or a bill payable should 

 never be entered in the name of the person 

 from or to whom it is due, because of the 

 legal provision mentioned above. Of course 

 it would be possible to open an account 

 called Q. A. Shaw's Notes, but as it is very 

 seldom that a firm holds many notes from or 

 owes many notes to one party, it is easiest to 

 group all under Bills Receivable and Bills 

 Payable. 



