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Notes of the United States for all debts, public and private, except duties on imports and interest on the public debt.

Gold certificates payable to bearer were made legal tender under a Senate bill passed by the House December 19, 1919, and signed by the President.

The following chart is intended as a general review of contracts and should be carefully studied.

1.-Competent parties

2.-Mutual agreement
1.-As to Essentials 3.-Sufficient consideration

4.–Legal subject matter
5.-Compliance with Statute

of Frauds.

2.-As to


1.-Under seal-Parol

1.-Written 2.-Simple 2.–Oral



3.-As to Validity


of Facts

of Law
4.-As to Effects 3.-Duress

4.-Undue influence

1.-By performance

2.-By agreement
5.-As to Discharge 3.—By intervention of impos-

4.-By operation of law
5.—By breach

A. THEORY QUESTIONS 1. If in the examination of the accounts of a merchant, the balance shown in the bank, or the balance as certified by the banker, agreed with the balance as disclosed on the merchants' cash book, would you consider any further examination necessary?

C. P. A. Ind. 2. The cashier of a firm had disappeared. The cash book is left written up and balanced off, the custom being to pay any cash balance into the bank each day. What course would you pursue to ascertain whether there were any defalcations.

C. P. A. Mich.

3. Name some of the advantages of the use of additional columns in the cash book.

C. P. A. Ohio. 4. If the actual cash on hand at the date of the Balance Sheet had not been verified by the auditor on the day of balancing, what method should be employed to prove the correctness before signing or certifying the statements. C. P. A. N. Y.

5. You are required to make a detailed cash audit for three years ending October 31, 1917. You find a disbursement for "Rent October, 1914, $1,000.00" on November 6, 1914. You are told the receipt is missing and the duplicate cannot be obtained. You are shown as a voucher a check dated November 6, 1914, payable to the landlord or order for $1,000.00, endorsed with a rubber stamp and marked by the client's bankers "paid".

State with your reasons whether you would accept this as sufficient evidence that the payment was made as recorded and, if not, what course you would adopt.

Inst. Ex. 1917.

B. ACCOUNTING PROBLEMS 1. The result of your count of the “Cash on Hand" at a large agency on January 1, 1912, discloses: Bills....

$1,979.00 Coins...

484.19 Cash items supported by properly

signed vouchers:
Jan. 14, 1908, Sub-agent Jones.... $200.00
July 20, 1909

Thomas.. 140.00
Aug. 20, 1909,

Vincent.. 75.00
Sept. 30, 1910,

Nelson... 230.00

645.00 Cash balance as per general ledger, .. $3,108.19 Does this count complete your duty as an auditor? If you consider that further steps are necessary, state what you would do.

C. P. A. La. and Ore. 2. The cash book of a general trading concern shows for the month of January, 1912, the following:


RECEIPTS Jan. 4 Collections from customers 7

do IO

do 13

do 16

do 23

do 26

do 29


Total receipts per cash book......

$ 2,818.62

1,147.33 1,064.87 1,232.55 1,463.24 2,417.14 1,283.84 1,543.62

1,054.27 $13,925.48


Jan. 1 Overdraft on Bank

3 Sundry checks
7 do


do 19

do 23


31 Balance as shown by cash book


10.32 2,153.27 1,427.83

926.84 853.87 428.32

647.83 2,437.38

5,029.82 $13,925.48

Cash on hand undeposited amounted to $56.33.
A Petty Cash Fund is operated on the Imprest system.

The books had been audited to the 31st of December, 1911, and the fact established that the overdraft of $10.32 was correct, after all checks drawn had been presented and paid by the bank.

The deposits in the bank for the month of January, as shown by the bank pass book, after having it balanced at the close of business January 31, amounted to $13,854.37, and the checks returned by the bank for the same period totaled $8,832.34.

There were checks outstanding at the time of balancing, January 31, amounting to $53.27.

Fraud is suspected on the part of the cashier, and you are asked to check the transactions recorded by him as shown by the cash book. Prepare a statement showing the results of your investigations. Your statements should show total amount of the discrepancy. Also state, with reasons, what further documents and records you will require, if any, to trace the cash transactions fully.

C. P. A. Ohio


1. Enumerate the methods by which contracts may be discharged.

C. P. A. Ohio. What is your understanding of the term "Legal Tender"? Having defined this, state what falls within that designation in this country.

C. P. A. III. What is a tender to perform a contract, and what is its effect?

Inst. Ex. 1918. 4. Give an illustration of a debt or claim that is not dischargeable in bankruptcy.

C. P. A. Mich. 5. In what way may a contract be discharged by operation of law?

Inst. Ex. 1918

Chapter Five


Having completed the audit of the Cash account, the next account to be taken up is Notes Receivable. Notes are easily convertible into cash, consequently should be audited on the same day that the Cash account is audited.

1. ACCOUNTING THEORY. There are two methods of recording notes and drafts receivable. The first method is to record them in the general journal and to keep a record in an auxiliary notes receivable book. Under this plan the notes receivable book contains a memorandum record only and does not constitute a posting medium. The notes receivable book should show the date received, drawer or endorser, maker or drawee, payee, where payable, due date, amount, rate of interest, and when paid.

The second method is to record notes and drafts in a notes receivable book from which posting is to be done. In other words, when this method is followed, the notes receivable book is considered a book of original entry and no auxiliary record is kept. This book differs from other subdivisions of the journal in that it provides for considerably more information. All the information provided for in the auxiliary notes receivable book explained above, is also provided for under this plan, and in addition, columns are provided to enable the bookkeeper to post the totals to the proper accounts in the ledger. The exact arrangement of the columns will depend upon the system of accounts in use. The notes receivable book will usually provide for a Notes Receivable debit, Interest debit, Interest credit, Sales Ledger credit, General Ledger debit and General Ledger credit columns. The important thing is to understand the two different methods of recording notes and drafts. If recorded in the general journal, then the entries should be supported by memorandum entries in an auxiliary notes receivable book. If a special division of the journal is to be used for recording transactions involving notes receivable, then all necessary information may be recorded in it and posting may be done direct from it.

Notes Receivable Account. If the first method explained above is followed, then the Notes Receivable account will show the individual debits and credits for each note receivable recorded in the books of account. If the second method is pursued, then the Notes Receivable account will be in the nature of a summary or controlling account. For instance, the Notes Receivable account will be debited only for the total of the notes receivable debit column in the notes receivable book and may be credited for the total of the notes receivable column in the cash book, depending upon whether or not a special column for notes is provided on the debit side of the cash book.

Terminology. The term "bills receivable,” is frequently used instead of "notes receivable", but it is practically universal in practice to records, notes and bills or drafts in the same account. Some bookkeepers call the account "bills receivable" while others call it notes receivable". The term "bills" comes from the use of drafts and bills of exchange. There is no real object in attempting to separate drafts and notes in the books of account and, to do so, will only lead to confusion. A draft accepted by a customer is a "promise to pay" just as much as a promissory note would be. Seymour Walton, * C. P. A., says:

“While the term 'bills receivable' is almost universally understood, it would perhaps be better if it could be replaced by the more accurately descriptive term ‘notes receivable', on the ground that in this country, when a person gives his written promise to pay a given amount, the document is invariably referred to as his note, while a bill is the creditor's statement in writing, specifying the amount and character of his claim in detail".

Trade acceptances are becoming quite popular with business men. The question often arises as to whether or not a separate account should be kept with trade acceptances. In other words, should they be separated in the books of account from notes receivable. There can be no real reason for separating them in the ordinary business except where the volume of trade acceptances is large and it is desired to show trade acceptances as a separate item in the statements. In this event, separate accounts can be kept with trade acceptances and they may be recorded in the general journal, or a special journal may be provided.

Notes Receivable Discounted. A question arises as to the best method of recording notes receivable discounted. With a great number of bookkeepers, it is common practice to credit the Notes Receivable account at the time of discounting a note. This has been criticised by accountants because of the fact that before a note can be discounted it must be endorsed, and in case the maker fails to pay the note at maturity, the endorser becomes liable, consequently, accountants hold that this liability must appear in the statements. It is considered better practice to keep a separate account with Notes Receivable Discounted, crediting the account for the face value of each note or draft when discounted at the bank and debiting it with the

*From his text on “Auditing”, published by the Alexander Hamilton Institute.

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