14 



BULLETIN 865, U. S. DEPARTMENT OF AGRICULTURE. 



If the estimated amount was §1,410 and the actual amount was $1,350 the entry at 

 ihe time of payment would be: 



Debit. Credit. 



$1, 410 Account Payable patrons. 



Surplus Adjustment account $60 



Bank Account 1, 350 



In both the above cases the Accounts Payable Patrons account would be closed. 

 The Surplus Adjustment account should be closed into Surplus account as described 

 on page 22. 



Notes Receivable Discounted (F 4). 



Debit: 



Credit: 



1. With the face value of notes dis- 



1. With the face value of all notes 



counted when settled for either by 



receivable discounted as shown by 



maker of through payment by the 



the Balance Sheet at the time of 



organization to the bank. 



opening the books. 





2. With the face value of all notes 





subsequently discounted. 



By refening to the explanation under Notes Receivable, it will be noted that men- 

 tion was made of notes receivable discounted, the proceeds of which were debited to 

 the Bank Account, thus raising a liability. In case a note that has been discounted 

 is not paid at maturity, the organization will be obliged to make payment to the bank 

 for the face value of this note, in which case the following entry will be made: 



Debit. Credit. 



$100 Notes Receivable Discounted. 



Bank Account $100 



(For note of James Benton not settled for by 

 him at maturity.) 



In case the note was met at maturity, the following entry would be made: 



Debit. Credit. 



$100 Notes Receivable Discounted. 



Notes Receivable $100 



(For note of James Benton settled for by 

 him at maturity.) 



In both the above cases the liability to the bank was liquidated — first, by payment 

 of the obligation by the organization, and second, by the maker. Therefore, Notes 

 Receivable Discounted should be debited in either case. In the first instance, how- 

 ever, the concern still owns the note against James Benton which is an asset for future 

 disposal, while in the second instance the note will be canceled and returned to the 

 maker. 



"Wlien notes are discounted, the amount of the discount i3 to be considered as an 

 expense and charged to an account called Interest Expense. 



Debit. Credit. 



$490 Bank Account. 

 10 Interest. 



Notes Receivable Discounted $500 



(For notes discounted at bank with 10 per cent discount.) 



