A purchase of other bonds would be recorded exactly as was explained for a purchase of U. S. Government securities, except that the debit side for the entry on the general ledger would be slightly different, all of the general ledger entries being as follows:
The bond register and bond ledger entries would be exactly the same under their proper security captions, as was explained for a purchase of U. S. Bonds. It is probably advisable to segregate all U. S. Government securities into one section of the bond ledger, but the bookkeeping would not be affected thereby. A sale of other bonds would result in the following general ledger entries:
Credit: Securities other than U. S. Bonds (7) Credit: Interest on Investments (32) (for the accrued interest)
The theory behind these debits and credits to the account "interest on investments" is as follows: If a bond with coupon maturity dates of January 1 and July 1 is purchased on April 1, three months of interest has obviously accrued on it. Assume for example that each coupon on the bond is worth $50. That means that $25 interest is accrued and when "interest on investments" is debited or charged for that $25, the balance of this earning account has been decreased by just that $25. However, on July 1 when the $50 is collected, a credit of that much is made in the "interest on investments" account, but $50 has not actually been earned from the date of purchase. From April 1 to July 1 the bank has really only earned $25, and that is the net credit which remains in the "interest on investments" account by debiting it first with $25 and then crediting it with $50.