SPECIAL ACCOUNTS AND ENTRIES 119 



uable, so the farmer credits him. That shows as a credit 

 balance in the hired man's account, increasing the liabili- 

 ties of the business. Accordingly, capital is decreased, 

 since liabilities increase without a corresponding increase 

 of resources. This decrease in capital is shown by the debit 

 to the nominal account Labor, which is a subdivision of 

 the capital account as presented in Chapter III. 



Notes Receivable. This account is governed largely by 

 the general principles regulating debits and credits to 

 property accounts, namely, debit when received, credit 

 when parted with. It includes all negotiable instruments 

 other than checks, bank drafts, and money orders received 

 into the business. From the principles governing the ac- 

 count, it is obvious that it should always have a debit bal- 

 ance, if any; and that a credit entry should not be made 

 indicating the giving out of a note unless an entry has 

 previously been made indicating the receipt of the same 

 note. Credit entries usually indicate that the note was 

 given out upon the receipt of cash from the maker. It is 

 proper, however, to credit the account when the note is 

 given out for any reason. If, for example, it is endorsed 

 over to Mr. A in settlement of a debt, Notes Keceivable 

 account is credited and Mr. A's account debited. If it 

 is discounted at the bank, Notes Receivable account is 

 credited for the face of the note and Cash debited for the 

 amount of cash, and Interest or General Expense debited 

 for the discount deducted, thus: 



Cash $98 



Interest 2 



Notes Receivable $100 



This entry indicates that a note whose face value is 

 $100, previously received from someone else, has been dis- 

 counted, $2 being deducted by the bank for discount. In 

 commercial accounting it is considered better in this spe- 



