D. L. Lawton's note, dated June 10, payable 30 days after date, without interest, for $560 (Compute discount on this note at 6%) G. E. Cooper's note, dated June 3, payable 30 days after date, with interest at 6%, for $625 S. N. Frazer owes on account, $378.40 Cash in Third National Bank, $1072.25 He owes a note in favor of National Exchange Bank, dated May 1, payable 3 months after date, with interest at 6%, for $1250 He owes on account: D. Williams, $257.80 C. E. Jarvis invests the following assets and liabilities: C. & N. W. R. R. Stock, $4500 Stock of goods, $1365.20 G. E. Long's note, dated June 8, payable 30 days after date, without interest, for $1172.50 (Compute discount at 6%) Jarvis' note, dated July 1, payable 60 days after date, with interest at 6%, for $5000 Cash, $4750 He owes a note in favor of Banker & Co., dated June 12, payable 60 days after date, without interest, for $1500 (Compute discount at 6%) He owes on account: CHAPTER XVII BANK AND SIGHT DRAFTS Drafts are of two kinds, bank and personal. Personal Drafts are either sight or time. A Bank Draft is an order drawn by one bank on a bank in another city, payable to the order of a person. Parties. There are three parties to a bank draft: the drawer, the payee and the drawee. The drawer is the bank that draws the draft. The payee is the person in whose favor the draft is drawn. The drawee is the bank on which the draft is drawn. A bank draft is similar to a check. A check is an order on a bank drawn by a depositor to the order of a person or to cash or bearer. The depositor orders the bank to pay a certain sum of money out of the funds that he has on deposit with the bank. Banks have deposits with banks in the large cities, particularly with banks in New York City and Chicago. A bank draft is, then, simply an order by a bank on a bank in which it has a deposit. If the draft is on a New York bank, it is frequently called New York exchange, and if on a Chicago bank, Chicago exchange. Uses of Bank Drafts. Bank drafts are used in place of checks to make remittances to firms in other cities. K. L. Laabs, Milwaukee, orders an invoice of goods of Arnold & Co., Pittsburg, Pa., amounting to $242.75. He has never dealt with Arnold & Co. before, and his financial standing is not known to Arnold & Co. If he sends a check on a Milwaukee bank in payment, Arnold & Co. will not fill the order until they know that the check is good. That will take several days. Arnold & Co. must deposit it with their bank in Pittsburg. The Pittsburg bank must send it to the Milwaukee bank either direct or through a Chicago bank, and if the check is good, the credit must be sent back to the Pittsburg bank in the same way. If K. L. Laabs had sent a New York draft in payment, it would have been accepted as cash and the order shipped at once. New York drafts are taken everywhere as cash for two reasons: 1. They are drawn by responsible financial institutions on large banks of large cities. 2. Before a bank draft will be issued, the buyer must pay for it. He may pay money, give a check on his account at the bank, or pay in any other funds the bank accepts as cash. If the buyer has an account at the bank, he draws a descriptive check, as follows: "Pay to the order of N. Y. Draft $242.75, Exch. 25¢, $243." The bank draft will then be issued if the check is good. The charge of 25¢ is exchange, which the bank charges for its trouble and expense. If the buyer of the draft does not know the amount of the exchange, or prefers to, he may write the check for the amount of the draft which he wishes to buy and pay the exchange in money. Bank drafts are usually made payable to the buyer (remitter) and indorsed by a special indorsement to the person to whom payment is to be made. The advantage of this is that the draft then shows the name of the remitter on the back. This is an advantage to the person receiving as there is no danger of placing the credit to the wrong account. The bank draft which K. L. Laabs would send to Arnold & Co. is as follows: In this draft, National Exchange Bank is the drawer, First National Bank, New York City is the drawee, and K. L. Laabs, the payee. The payee, K. L. Laabs would transfer this draft to Arnold & Co. by a special indorsement. (See illustration of special indorsement on page 130.) The entries for a bank draft are the same as for a check, with an additional entry in the books of the remitter for the exchange. This may be charged to Expense if the entries are few in number, or it may be charged to Collection and Exchange. You will charge it to the latter account. K. L. LAABS' ENTRIES, CASH PAYMENTS Ork 3 Arnoldobo. M.Y.dft. for order 24275 Oct. 5 ARNOLD & Co.'s ENTRIES, CASH RECEIPTS 25 Art's X. L. Laabs Inv. of torday 24275 Personal Sight Drafts. Personal sight drafts resemble bank drafts in that they are payable at once. They differ from bank drafts in these respects: 1. The drawer and the drawee of a sight draft are always persons. The payee may be a person or a bank. 2. The drawee of a sight draft legally may refuse payment even if he owes the drawer. The drawee of a bank draft cannot refuse payment if it has funds belonging to the drawer bank. 3. A sight draft is not usually accepted as cash until the drawee consents to pay it. Sight Drafts are of two kinds, the three-party and the two-party. Three-party Sight Drafts. The three-party sight draft is used to save the inconvenience and risk of sending money. If A in Chicago owes B in St. Louis and C in St. Louis A draft of this kind should not be used to Cashier pay a debt unless the drawer is reasonably sure that the drawee will pay the draft on presentation. He may assure himself of this by asking the drawee's permission, by notifying him that unless he objects, a draft will be drawn on him, or by quoting him prices and selling him goods subject to a sight draft. In this draft, G. Davis & Co. owe N. Willer $600 or more. N. Willer owes E. C. Frey at least $600. Both of these debts are canceled by this sight draft. N. Willer is the drawer, E. C. Frey, the payee, and G. Davis & Co., the drawee. N. Willer sends the draft to E. C. Frey, who presents it to G. Davis & Co. When G. Davis & Co. pay it, the draft is receipted by E. C. Frey and given to them. Should G. Davis & Co. refuse payment, a legal step called protesting the draft may be taken and the draft sent back to the drawer, N. Willer. Drawer's Entry. If N. Willer had paid E. C. Frey $600, he would have debited Frey's account for that amount. If G. Davis & Co. had paid N. Willer $600, then their account would have been credited. This result is accomplished by a journal entry. 6. 6. Frey N. WILLER'S JOURNAL ENTRY 3 Drew a sight 600 To G. Davis & Co draft on G. Davis &Co. and remitted it to E. C Frey, on acch ་ 600 |