`BANKING
`
`By
`
`EDWARD PRESTON MOXEY. Jr., Ph. D.. C. P. A.
`ASSISTANT PROFESSOR OF ACCOUNTING
`WHARTON SCHOOL OF FINANCE AND COMMERCE
`UNIVERSITY OF PENNSYLVANIA
`
`Member Firm
`E. P. MOXEY & CO.
`CERTIFIED PUBLIC ACCOUNTANTS
`AND BANK EXAMINERS
`
`Copyright
`by
`UNIVERSAL BUSINESS INSTITUTE.
`NEW YORK
`
`1910
`
`Inc.
`
`Public Domain, Google-digitized / http://www.hathitrust.org/access_use#pd-google
`Generated on 2015-03-31 13:50 GMT / http://hdl.handle.net/2027/hvd.hn8nq4
`
`eBay et al., Ex.1006, p.1
`
`
`
`32
`
`PRACTICE OF BANKING
`
`This
`order upon funds which he has at the bank.
`deposit even may have been created in the course of
`The result of the system, how
`transaction.
`a credit
`is that instead of keeping money employed from
`ever,
`day to day in the mere work of making payments
`It can be de
`back and forth,
`its use is economized.
`voted to productive employment, while current ex
`changes are affected by the transfer of promises
`to
`pay. The economies of the credit system are particu
`larly evident in the case of two persons or concerns
`having continuous business dealings with each other,
`both buying and selling.
`A Simple Case.
`A simple
`and the
`of a farmer
`that
`is
`case
`in town.
`from whom he buys his supplies
`grocer
`The farmer buys flour and coffee and sugar and
`his
`or weekly
`daily
`countless other
`things
`on
`to town, but he also brings with him and
`visits
`fruit and
`and eggs,
`the grocer butter
`sells
`to
`It would be
`in the course of the month.
`vegetables,
`foolish and entirely unnecessary for him to pay the
`for the
`grocer each time he made a purchase, or
`grocer to pay him each time he made a sale.
`Instead,
`each will run an account with the other until the end
`of the month or some other convenient settlement day,
`if they are wise. All the items which the grocer sells
`to his customer he will enter upon his books, and
`also keep a record of the produce received from him.
`The farmer should do likewise. At the end of the
`month, these two book accounts will be compared and
`offset against each other. We will suppose that the
`farmer has purchased $40.00 worth of groceries and
`
`Public Domain, Google-digitized / http://www.hathitrust.org/access_use#pd-google
`Generated on 2015-03-31 13:46 GMT / http://hdl.handle.net/2027/hvd.hn8nq4
`
`eBay et al., Ex.1006, p.2
`
`
`
`HOW CREDIT HELPS IN THE WORK OF EXCHANGE
`
`33
`
`has delivered to the grocer in the course of the month
`$35.00 worth of the products of his farm. Here we
`have $75.00 involved, and yet there is only a balance
`of $5.00 which need be settled in cash.
`It might even be possible to extend the system for a
`time, merely making comparison of
`longer
`the ac
`counts at convenient times and making actual settle
`ments only once a quarter or even once a year. For in
`the farmer might feel reasonably sure that in
`stance,
`the following month he would bring to the store an
`amount of produce worth at least $5.00 more than the
`value of the supplies which he would purchase from
`In that case the grocer might simply enter
`his grocer.
`this balance of $5.00 as owing him at the end of the
`first month, and at the end of the second month offset
`it against the $5.00 which he owed the farmer.
`Book Account and Bank Account.
`form of credit,
`This is the simplest
`the book ac
`count, and is used very extensively. As a matter of
`fact, in a large number of cases, no actual promise of
`it is understood
`payment even has boon made, but
`that a customer ordering goods upon a book account
`expects to be held for payment, and such a current
`record kept upon the books of the seller is admitted to
`This
`court as a sufficient evidence of
`indebtedness.
`system may be slightly modified in case the relations
`between buyer and seller are not such as to justify
`It may be that the
`the running of an open account.
`purchaser is unknown to the seller or that the trans
`to hardly justify
`actions are so infrequent
`the
`as
`In that case bank credit
`opening of a book account.
`will
`form a convenient means of
`The
`settlement.
`
`Public Domain, Google-digitized / http://www.hathitrust.org/access_use#pd-google
`Generated on 2015-03-31 13:47 GMT / http://hdl.handle.net/2027/hvd.hn8nq4
`
`eBay et al., Ex.1006, p.3
`
`
`
`122
`PRACTICE OF BANKING
`if it is possible to persuade him to take payment in
`It might be that the bank would decline
`that form.
`to buy the note on any other terms or, if it did, would
`probably charge a much heavier discount.
`
`s
`
`Commercial Paper.
`The largest class of promissory notes which are
`for deposit
`to the bank in exchange
`ac
`presented
`from commercial
`trans
`counts are
`arising
`those
`that i
`where goods are sold upon credit and
`actions,
`the purchaser's promissory note for the amount i
`Such notes commonly run for
`taken by the seller.
`thirty, sixty, or ninety days, but the person who has
`sold the goods probably desires
`to use the proceeds
`these "bills receivable" at once for the payment
`of
`of wages or other expenses constantly arising in the
`conduct of his business.
`Instead of waiting for them
`to mature, therefore, he will probably endorse
`them
`over to his bank, to whom he will take them for dis
`The amount of discount will depend on the
`count.
`length of time before the notes become due and will
`for
`be figured as interest on the amount advanced,
`The merchant with such notes to discount
`that time.
`will naturally take them to his own bank becausei
`there that he would be most likely to get the accounts
`discounted on favorable terms. Naturally, therefore,
`he does not wish to withdraw the money, but hasi
`He wishes
`turn
`placed to his deposit account.
`to
`these obligations of his purchasers intoa ready means
`of paying his debts, and the deposit account furnishes
`for this purposea means of payment more convenient
`even than cash.
`
`s,
`
`is
`
`t
`
`t
`
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`
`eBay et al., Ex.1006, p.4
`
`
`
`THE BANK CHECK
`
`173
`
`check, even to a person with whom he was not person
`ally acquainted is not liable for the loss,
`inasmuch as
`he was a ' ' bona fide holder for value. ' ' The drawer of
`such a check must lose the money precisely as though
`he had lost a note or a greenback.
`
`Payment by Check.
`For this reason many persons will not receipt a
`bill paid by check.
`itself, after being
`The check
`cancelled and returned to the drawer, becomes
`a
`in order that there may be no
`receipt.
`Sometimes,
`questions as to the exact purpose of issuing the check
`the drawer will specify upon the face of the check
`the nature of the transaction in settlement of which
`it was given.
`
`Insufficient Funds.
`It sometimes happens that a check
`is presented
`for payment at the drawer's bank when there are
`not sufficient funds on deposit to pay it in full.
`There
`If the draw
`are two courses then open to the bank.
`er is an old customer and they have reason to believe
`it is only through an oversight
`that sufficient
`that
`money is not on hand to meet
`the bank
`the check,
`will probably pay the check,
`thereby creating an
`to the customer's account. Of this they
`overdraft
`will notify him and look to him for payment. but in
`case he fails to settle,
`the bank itself must bear the
`To be absolutely safe,
`the bank might decline
`loss.
`to the person presenting it or
`to pay the cheek
`return it to the bank through which it is presented,
`marked "insufficient funds."
`
`Public Domain, Google-digitized / http://www.hathitrust.org/access_use#pd-google
`Generated on 2015-04-01 00:13 GMT / http://hdl.handle.net/2027/hvd.hn8nq4
`
`eBay et al., Ex.1006, p.5