13. Cash credits further illustrated.—The second item records the fact that for the week ending March 28 the amount of $200 was paid out for sales clerks' salaries. The writing of this amount indicates a credit to cash and a debit to another account, which, in this case is `!sales clerks' salaries." The fifth entry, which records the payment of the principal and the interest of a note that has fallen due, must be handled differently. When this note was given, "notes payable" was credited and some other account, was debited. Whether or not "cash" was the account debited, depends upon whether the note was given in settlement of a debt or in exchange for cash. It should be noted that there is a debit to "cash" and a credit to "notes payable" on the left-hand side of the cash book, on page 86. This explanation illustrates the method by which the exchange of a note for cash is recorded. A total of $757.50 must be paid to cancel the indebtedness of the business in connection with the maturing note, but this indebtedness is divided into two parts, and the indication is made that $750 is paid for the note, and $7.50 for the additional claim, called interest, which the bank holds against us by virtue of our contract with it.
There are two purposes upon which this separation of the indebtedness is based. The first is, (1) that after the posting to the debit of the notes-payable account has been completed, the previous credit of $750 shall be offset; it is now wiped out. This is done in order that the notes-payable account may always show the value of the notes outstanding. The second purpose is to have a separate record of the amount paid out for interest, which represents incomes shared with some one else because of operation on borrowed capital. There should be a separate account in the ledger, covering interest, to which this $7.50 should be charged.
The total of the cash payments is extended into the right-hand money column and may be posted, in total, to the credit of cash, instead of individually for each item. The same saving in time and posting results from the operation of the credit page of the cash book as was shown, in the previous discussion, to result in the case of the debit page. Monthly postings, if prop erly made, will be equally satisfactory. However, in order that the double-entry form of recording may be complete, the debits must be posted separately to the various accounts named in the account-debited column.
14. Sales of merchandise result pri marily in credits to the merchandise account. It is, however, more satisfactory to record these in a sep arate account, in order that their total may be ascer tained without being confused with any other items. Consequently, a separate account is opened, which is called "merchandise sales." All records of sales can now be segregated in one book, which will be a sales journal or a sales book. Right-hand and left-hand pages are not specified in this book, since no debits to the sales account will be recorded here. There will
be simply a record of every sale that constitutes a charge against the purchaser and a credit to "mer chandise sales." The following form illustrates the use of a separate sales book: In the first transaction, the business sells to William Jones $90 worth of merchandise. His account must be charged and the sales account—or the merchandise sales account—must be credited. In the case of the second transaction, "notes receivable" is charged, be cause Samuel Greene gave his note as formal evidence of the fact that he owed the business $180. The rec ord of the transaction with John Reed is handled in the same manner. It is evident that the total credit to the sales account at the end of the month is equiva lent to, and is offset by, the various charges to the in dividual customer's accounts.
Since the sales book is devoted entirely to the re cording of merchandise sales, every amount extended into the total column may be viewed as constituting a credit to the sales account. Therefore, it is unneces sary to post such amounts separately to that account. In the case that is illustrated, the total of $490 for the day's business could be posted to the merchandise sales account in one item, and thus all the sales for that day could be recorded the same way. By carrying the total forward to the end of the month, one posting could be made to the sales account which would credit it for all the sales made during that month.
15. Cash sales.—It will be remembered, that, in the discussion of the debit page of the cash book, illus trated on page 86, the treatment of the money re ceived from cash sales of merchandise was temporarily ignored. It is to be noted that the same item of $175, cash sales, is recorded in the sales book and in the cash book. This is done because our sales book should record all the 'sales made. At the same time, the amount of cash received must be entered in the cash book, in order that it may contain a record of all cash transactions.
Of course, all these. transactions are carried on with individuals, and when the sale is made the customer may be charged and the sales account may be ited thru our sales book. Also, for the purpose of recording his payment, his account might be credited and "cash" might be charged thru the cash book. But this would mean a waste of time, since the custo mer pays cash at the time he makes his purchase. The credit to the sales account may be expressed in the sales book, and the debit to the cash account in the cash book, the debits and credits to the customer's ac count may be omitted, as the former will offset the latter. Consequently, a check-mark is entered in the ledger folio opposite the items under both these heads, to indicate that they will be posted in total only, since the complementary debit and credit are in separate books.