The use of the term voucher register is probably a slip of the pen. Sales are recorded in a sales register, not in a voucher register. However, the salvage sales should not be recorded in either register, unless the sales register has a sundries column from which the items can be posted to the credit of salvage account. These sales should be recorded by journal entries, except where they are made for spot cash, in which case they would appear in the cashbook only. The sales register should be used only for regular sales of the merchandise made by the factory.

INTEREST IN PART PAYMENTS

Editor, Students' Department:

SIR: What is the proper method of treating a mortgage note for $2,500.00 on which the mortgagee has the privilege of paying $20.00 monthly and interest at 6 per cent until paid? Would you give a receipt the first of every month for $20.00 as a part payment and charge or collect the interest at the end of each year? Would it be advisable to calculate the interest each month and specify in the receipt the amount applicable to principal and interest? R. L. R.

The proper treatment of payments of interest and principal on a mortgage note would depend entirely upon what the contract stated in regard to the distribution of monthly payments between principal and interest.

For instance, I have before me a note requiring the payment of $2,000 in the following manner: "The $2,000 is to draw interest at the rate of 6 per cent per annum and is to be paid as follows: the maker hereof is to pay to the said payee or order $40 on the first day of each and every month hereafter until the said sum of $2,000 and the interest thereon is fully paid; that is, the interest due from time to time on the unpaid balance is to be first deducted from said payment of $40 and the balance remaining is to be applied on account of the said principal sum of $2,000."

This recital clearly indicates what distribution is to be made of the monthly payments; and endorsement should be made on the note, showing the amount of the cash received for interest and the amount received on the principal. It would not be sufficient for the holder of the note to give a receipt for the payment because of the fact that the paper is a negotiable instrument and, if the part payments were not recorded on the note itself, the note might be sold by the holder and a holder in due course could enforce payment for the total note.

If it is the intention that the $20 monthly payment, in the case in question, is to apply entirely upon the principal, this should be endorsed on the note as an application against the principal. The question would then arise as to whether at the end of the year the debtor would pay interest on the principal outstanding at the beginning of the year or on the average principal outstanding during the year.

Unless specified differently in the contract, the interest to date on the then unpaid balance would have to be paid every month. The law is that interest takes precedence of principal, unless otherwise stipulated. That is, if the contract is silent as to when the interest shall be paid, any

payment made must first be applied to the payment of the interest accrued at that time and only the remainder will be applied in reduction of the principal. In the contract which we have mentioned this is plainly stated, probably to avoid misunderstanding, but it was not necessary to state it, as the procedure would have been the same in any case. On that contract the same payment of $40 is made every month, but the division between principal and interest varies thus:

1st mo. payment $40.00; interest on $2,000.00, $10.00; principal $30.00

In the case cited by our correspondent the expression "$20.00 monthly and interest" can be construed to mean only that the interest is an addition to the $20.00, not that it is included in it. The payments and the interest would constantly decrease, but the reduction of principal would thus:

not vary,

1st mo. payment $32.50; interest on $2,500.00, $12.50; principal $20.00

46

32.40; 32.30;

66

66

2,460.00, 12.30;

20.00

3rd mo. The law giving preference to interest is not at all well known to business men, and is seldom or never followed in ordinary commercial transactions, because the difference in the total interest is very small when the time is short and the amounts are not large. What is known as the commercial rule is usually followed. This requires the calculation of all the credit and all the debit items of interest separately and the payment of the difference. As an example take the following account: Jan'y. 1, Merchandise 1,200.00 Feb'y. 10, Cash

800.00

1,100.00

700.00

300.00

It is proposed to settle this on June 30th with interest at 6 per cent. per annum calculated at 360 days to the year.

which shows a debit net of $27.33, and a total due of $827.33.

The legal or "United States" plan would be:

Jan'y. 1, Debit

$1,200.00

Feb'y. 10, Payment 800.00 less interest 40 days on 1,200.00 8.00 792.00

March 2, Debit

408.00

1,600.00

March 17, Payment 1,100 less interest 20 days on 408.00, 1.36 2,008.00 66 15 2,008.00, 5.02 6.38 1,093.62

914.38

April 16, Payment 700.00 less interest 30 days on 914.38 4.57 695.43

May 1, Debit, net

218.95

600.00

818.95

=8.74 8.74

827.69

June 30, Interest 15 days on 218.95 .55, and 60 days on 818.95, 8.19

Amount due

This shows a difference of only 36 cents, which is considered negligible on such amounts.

In the example quoted by us the method pursued would leave at the end of the 57th month an amount due of $26.99. In the 57 months there would have been paid in at $40.00 per month $2,280.00. If the small balance were paid at once the total amount paid would be $2,306.99. By the commercial method the interest on $2,000.00 for 57 months would be $570.00, a total debit of $2,570.00. Against this there would be a credit of 57 times $40.00 or $2,280.00 and interest on the first $40.00 of $11.40, diminishing each month in arithmetical progression to 20 cents the last month, or $330.60, a total credit of $2,610.60. As the credit is $40.60 more than the amount due, while by the United States rule there is still $26.99 due, it is seen that the commercial rule in this case favors the borrower to the extent of $67.59 which is by no means a negligible amount on a $2,000 note.

Accountants and bookkeepers should be more familiar than they are with the laws of interest. They can often save their clients or employers considerable sums if they know the effect of the different methods of calculation.

NOTES OR BILLS PAYABLE

Editor, Students' Department:

SIR: Does the accounting profession differentiate between bills payable and notes payable not only practically but also theoretically? One party contends there is no difference; the other says there is, with the explanation that notes payable, are the regular promissory notes and should always bear interest and do not recite that they are given to liquidate a specific kind of transaction, merely value received, whereas a bill payable is a trade acceptance, a bill of exchange, certified cheque or accepted sight draft. G. Q. D.

The accounting profession has not differentiated as yet between notes payable and bills payable.

In England and in continental Europe drafts or bills of exchange have been a more customary method of handling credit transactions than notes payable. In England, where most of our accounting terminology origi

nated, bills of exchange were much more common than notes; therefore they used the term bills payable and bills receivable, and whenever a few notes were given they were entered in the account with the bills.

In this country the custom has been exactly the reverse. We have been accustomed to giving notes rather than accepting bills of exchange; but we have used the English terminology of bills payable until recent times. Realizing that the term bills payable was not as appropriate in this country as in England, a movement has been on foot to change the terminology from bills payable to notes payable and this movement has met with considerable success so that the term notes payable rather than bills payable now frequently appears in balance-sheets.

Strictly speaking a promissory note is a note payable; a trade acceptance is a bill payable; but I am inclined to think that as trade acceptances become more prevalent they will be recorded in a trade acceptance account rather than a bills payable account.

The statement that notes payable should always bear interest is not correct. Interest is an immaterial detail which may be found in a bill of exchange or trade acceptance as well as in a note and is not essential to either. In an accounting sense bills payable are always notes or acceptances payable at a future date, and the term does not include cheques or sight drafts.

The objection to the term bills payable is that in this country many business men not being accustomed to bills of exchange think the term refers to the bills rendered by their creditors which are payable every month.

ANONYMOUS LETTERS

This department continues to receive anonymous letters asking for information. Unless name and address both are given, no attention is paid to such requests as a usual thing. It is to be noted that a letter signed J. L. W. with the address of New York is an anonymous letter.

If the enquirer does not wish his name used, he can sign any initials or anything else, provided he give his real name and address below with the request that they be not used. This request will always be granted.

Alabama Society of Certified Public Accountants

At a meeting held in Birmingham, Alabama, September 27, 1919, it was decided to organize the Alabama Society of Certified Public Accountants. H. S. Miller was elected president, and J. A. Harden secretary and

treasurer.

Henry J. Falk

Henry J. Falk, president of the Colorado State Society of Certified Public Accountants, died in Denver, September 27th. Mr. Falk was a member of the American Institute of Accountants and was keenly interested in the development of the profession throughout the country.

John K. Laird and H. C. Goettsche announce the formation of a partnership under the firm name of Laird, Goettsche & Co. with offices at 431-5 Chicago Stock Exchange building, 30 North La Salle street, Chicago.

Warrel S. Pangborn announces that he has taken into partnership his son, L. Moss Pangborn, and that the firm name hereafter will be Pangborn & Pangborn, with offices at 30 Broad street, New York.

Banks, Haig & Co. announce that Fred W. Lindars has become a member of the firm, which will continue in practice under the name of Banks, Haig & Lindars at 150 Nassau street, New York.

Edward I. Petze & Co. announce the opening of offices at 118 Asylum street, Hartford, Connecticut, and 80 Broad street, New York.

Eli Moorhouse announces that he is now a member of the firm of John G. McIntosh & Co., 309-310 White building, Seattle, Washington.

Griswold & Conant announce the removal of their offices from 85 Devonshire street to Old South building, Boston, Massachusetts.

John J. Lang announces the opening of an office in La Salle building, Broadway and Olive street, St. Louis, Missouri.

E. F. Leathem & Co. announce the removal of their Birmingham, Alabama, office to the Brown-Marx building.

John J. C. Shelly announces the opening of an office at 505 Confederation Life building, Winnipeg, Manitoba.

John Y. Richardson announces the resumption of practice in the Concord Building, Portland, Oregon.

Arnold, Nold & Co. announce the opening of offices in the Andrus building, Minneapolis, Minnesota.

Puder & Puder announce the opening of a branch office in the Land Title building, Philadelphia.

Nau, Rusk & Swearingen announce the opening of a branch office at 280 Broadway, New York.

Joseph Gill announces the opening of an office at 2 Rector street, New York.