Bills Receivable Samuel Smart's note $100.00 due Oct. 10th =88. When Collected by Bank.= Perhaps the note was collected through our bank; in that case, the bank, instead of sending us the cash, will credit the amount to our account. The bank may, also, charge a small fee for collecting the money; consequently the amount placed to our credit will be the sum collected, less their fee. The entry in the journal would then be: Bank $99.85 Interest and Discount .15 Bills Receivable $100.00 Smart's note due Oct. 10th Collected by bank. =89. When Discounted.= At the time we received Samuel Smart's note, we may have needed the money for immediate use in our business. We would then take the note to the bank, endorse it payable to the bank, when they would discount it, giving us credit for the net proceeds. Since the money is advanced to us, the bank would charge us interest for its use, which amount would be deducted from the whole amount, leaving the net proceeds. This amount would then be available for immediate use. The note is then the property of the bank; it has gone out of our possession and we have received the cash. The note is not paid, and in discounting it we have created a liability to the bank. Remembering that one of the functions of bookkeeping is to exhibit the true nature of our assets and liabilities, we open a _Bills Discounted_ account in the ledger. The entry is: Bank $99.50 Interest .50 Bills Discounted $100.00 Discounted Smart's note due Oct. 10th. =90. When a Note Drawing Interest is Discounted.= The above transaction presupposes that the note is given _without_ interest; but if it were given _with_ interest, the bank would simply add the interest to the principal and deduct the discount from the total. In the case the sum of the principal and interest ($100.00 + .50 = $100.50) is $100.50, and the discount $.50, which would leave $100.00 as the net proceeds. If the amount of the note were larger or the interest was figured for a longer time, it would make a difference. Suppose the amount of the note to be $2,000.00, time 30 days, interest 6% per annum. Principal $2,000.00 Interest 30 days 10.00 Total $2,010.00 Less interest on $2,010.00 for 30 days 10.05 ---------- $1,999.95 Since the net amount realized is less than the face of the note, we need not consider the interest earned, but the entry would be: Bank $1,999.95 Interest and Discount .05 Bills Discounted $2,000.00