Loan And Trade Bills

Reference has been made to the entering of the bills in different classes. The discounts, like the collections, are divided into classes, but for a different reason. The bank wishes to know at all times how much of the various kinds of paper it has under discount. Different banks will have their bills differently classified. The two main classes of bills are "Accommodation" or "Loan Bills," and "Trade Bills."

The first named class contains the bills representing direct loans by the bank to its customers. A business man wishes to borrow a thousand dollars for some purpose or other. He goes to the bank and offers his note, secured by an endorser, or in some other wise, and the bank lends him the money. His note is said to be an accommodation or loan bill. This is an entirely different transaction from that which ensues when the customer brings to the bank for discount notes given to him by his debtors in settlement for goods purchased by them from him.

These latter are said to be trade bills, because they represent actual trade transactions. Generally speaking, they are considered superior to the accommodation bills as a banking security.

These two classes may be subdivided again into special kinds of loan bills and special kinds of trade bills. For example, there may be a section of the book devoted merely to loan bills, one to loans on warehouse receipts, or, if they be specialized, to grain loans, dairy loans, etc. The trade bills may be divided into local bills and remitted bills, and into any other class that may seem desirable. All the bills of the same class are numbered consecutively, usually with a distinguishing letter or letters prefixed. An account may be kept in the general ledger for each class of bills.

When Discount Entries Are Made

If it was thought well to do so, the entries pertaining to the discounting of bills could be taken into the work of each day as it closed. They are made from the discount register. In the case of loan bills, there would be on the one side the debit for loan bills amounting to the total of the loans put through; and on the other, a credit for each one of the profit or revenue accounts that are run. Interest account or discount account would be credited with the total of the interest; exchange or commission account would be credited with the total of the exchange or commission; if there were other charges they would be credited to whatever account was kept for them, and the total of the proceeds would be credited to current accounts. The grand total of all these credits-profit accounts and proceeds-would exactly balance the amount of the debit-to loan bills. Trade bills would receive the same treatment, and so would any other class of bills for which a subdivision of the register was made.

Though this should, theoretically, be done at the close of each day, it is handier in practice to make these entries on what are called closing days. The bills are allowed to run on each day, no entry being made in the bank's books except the posting of the proceeds in the customers' deposit accounts, until a balance day comes round. Then the entries are made by taking the totals of the transactions that have occurred since the last previous balance day, and entering them exactly as described above, the only difference being that they comprise the work of a number of days instead of one day.

Under this system, though no debit is put through for loan bills or trade bills, and no credits for the profit accounts, the entries are in abeyance. In the interim between balance days it is necessary to take these figures into account before a balance can be taken of the bank's books, or before the proper amount standing in any of the accounts concerned can be arrived at. The bank has actually made the loans, discounted the bills, and it has received its profits thereon; the entries for the same have been merely deferred as a matter of convenience.