TOPIC 1: BILLS OF EXCHANGE | B/KEEPING FORM 4
TOPIC 1: BILLS OF EXCHANGE | B/KEEPING FORM 4
Meaning of a Bill of Exchange
person is given to pay the certain sum of money to the writer of letter
or to pay any other authorized person or who has this bill of exchange.
It should be in written.
Unconditional order to pay.
Signed by writer.
Debtor must be a certain person.
Payment must be a certain amount.
Payment must be done on maturity of bill.
Acceptance must be given by debtor on this bill.
of Exchange and Promissory Notes are treated alike for accounting
account “Bills of Exchange”.
(b) Drawee (Acceptor),
(c) Endorser, and
a drawer endorses a Bill, which he received from the Acceptor, he
the receiver of the endorsed Bill is an Endorsee.
bill of exchange or Promissory Note may be treated as Bills Receivable,
when payment has to be received against it.
Bills Receivable for the drawer as he has to receive the amount.
of exchange or Promissory Note may be treated as a Bill Payable, when
payment has to be made against it.
a bill of exchange is a Bill Payable for the drawee (Acceptor).
it is clear that Bills of Exchange or Promissory Notes can be Bills
Receivable to one party and Bills Payable to another party.
One can keep the Bill till the date of maturity and realize the payment against it.
One can discount the Bill with a bank before its maturity, if he is in need of money.
One can transfer the Bill, against a debt, to his Creditor by endorsing it.
One can send the Bill to the bank for collection of amount against it.
March 10th, A sold goods to B and draws on B a Bill at three months for
Rs 800, which B accepts immediately and returns it to A. The Bill is
honoured on the due date. Pass entries in the books of both A and B.
accepted a four months’ draft for Rs 1,000 drawn on him by B on 15th
April. The Bill was discounted with the bankers on the next day at 12%.
1st June Ram drew a bill upon Krishna for Rs 500 at four months date.
This was duly accepted and payable at Canada Bank. After the acceptance,
the Bill was endorsed to Gopal.
Ravi draws a Bill for Rs 2,000 on Gopal on 15th September for three
journal entries in the books of Ravi and Goipal, if he had retained the
Bill with him till maturity.
15th June, Niranjan sold goods to Prema, valued at Rs 2,000. He drew a
Bill at 3 months for the amount and discounted the same with his bankers
at Rs 1,960. On the due date, the Bill was dishonoured and Niranjan
paid the bank the amount due plus the noting charges of Rs 10. Pass the
journal entries in the books of the two parties. (B.Com Mysore)
1st January, A drew a Bill on B for Rs 1,000 payable after three
months. B accepted the bill and returned it to A.
endorsed the Bill to his Creditor C.
the due date, the Bill was dishonoured and C paid Rs 5 as noting
charges. Record the transactions in the journals of A, B and C.
1st January, A drew a bill on B for Rs 1,000, payable after three
1st May, Merchant & Company sold goods to A B & Co. for Rs 500
and drew upon him a Bill at three months for the amount.
accepted the draft and returned to Merchant & Co. On the due date A B
in cash and to accept a new bill for the balance plus interest at 12%
p.a. for three months.
maturity, the bill was duly met by A B & Co.
a bill is dishonoured, it becomes valueless and the original position
of debtor and creditor is restored between the drawee and the drawer.
Upon its dishonor, the holder of a bill has a right of action against the drawee or any previous endorser.
When an endorser makes the payment to the endorsee, he can sue any previous endorser or the drawer.
dishonour, to avoid confusion and multiplicity of legal actions,
generally the drawer takes up the bill and exercises his rights upon the
Expenses incurred for establishing the fact of
dishonour of a bill (noting charges) are generally paid by the holder,
but ultimately these are recoverable from the drawee.
1st January, A sold goods to B for Rs 1,000 and drew upon him a Bill at
three months for the amount. B accepted the Bill and returned it to A.
1st February, Ram received from Hari three acceptances for Rs 6,000, Rs
8,000 and Rs 10,000 for two months.The first Bill for Rs 6,000 was
endorsed to Mohan; the second Bill for Rs 8,000 was held till due date;
and the third Bill for Rs 10,000 was discounted for Rs 50.
all the Bills were dishonored.
and the ledger accounts in the books of Hari, in respect of these
(a) Naresh informs Nilesh that Snajay’s acceptance for `. 8,000 endorsed to Naresh has been dishonoured. Noting charges `. 200.
Sujit renews his acceptance to Nilesh for `. 4,800 by paying `.1,600 in
cash and accepting a new bill for the balance plus interest for 3
months @12% p.a.
(c) Prakash’s acceptance to Nilesh for `.24,000 retired one month before its due date at a discount of 12% p.a.
(d) Bank informs Nilesh, the dishonour of Prashant’s acceptance for `. 8,000, discounted with Bank. Noting charges `.160.
|Date||Particulars||LF||Debit (`.)||Credit (`.)|
||Sanjay A/c…………………………..Dr. To Naresh A/c(Being endorsed bill dishonoured and noting charges paid)||8,200||8,200|
||Sujit A/c………………………………Dr. To Bills Receivable A/c(Being Bills cancelled)||4,800||4,800|
||Sujit A/c………………………………Dr. To Interest A/c(Being interest receivable)||96||96|
||Cash A/c……………………………..Dr. To Sujit A/c(Being part payment received)||1,600||1,600|
||Bills Receivable A/c………………..Dr. To Sujit A/c(Being new bill drawn and accepted due after 3 months)||3,296||3,296|
||Cash A/c………………………………Dr.Discount A/c…………………………Dr. To Bills Receivable A/c(Being Bill Retired)||23,760240||24,000|
||Prashant A/c…………………………Dr. To Bank A/c(Being discounted bill dishonorued and noting charges paid)||8,160||8,160|