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Ch.8 Bills of Exchange [Accountancy]

Ch.8 Bills of Exchange
A bill of exchange is generally drawn by the creditor upon his debtor.
  • Drawer means the person who sale good or who drawn a bill.
  • Drawee means the person who purchases or accepted the bill.
  • Payee is the person to whom the payment is to be made on maturity date.
Case 1
Transaction
Drawer (Say X)
Drawee (Say Y)
When X sold good to Y
Y                       Dr.
      To Sales A/C
Purchase A/c Dr.
        To X A/C
When Y received a bill drawn by X
B/R A/C          Dr.
       To Y A/c
X A/C              Dr.
         To B/P A/C
On due /maturity date
Bank A/C        Dr.
       To B/R A/C
B/P A/c          Dr.
       To Bank A/c
Case 2
When bill is discounted by bank
Bank A/C        Dr. Discount on bill A/C Dr.
         To B/R A/c
No
Entry
On Due / Maturity Date
No Entry
B/P A/C    Dr.
 To Bank A/C
Note:
  1. Discounting Charges
=Amount of bill × Rate100 × Remaining Period
  1. Gress Period = 3 Days
  2. Maturity date of a bill = (1) +3 days normally   
                                            (Gress Period)
  (2) -1 days
(Public holiday / Sunday)
  (3) +1 days (if emergency)
Case 3
Endorsement of a Bill
Transaction
X
Y
Z
If X endorse a bill in favour of Z
Z A/C        Dr.
  To B/R A/C
No
Entry
B/R A/C     Dr.
     To X A/C
On maturity
No
Entry
B/P A/C    Dr.
To Bank A/C
Bank A/C  Dr.
    To B/R A/C
Case 4
Bill send for collection through the Banker.
  1. When bill is sent for collection:
Bill sent for collection A/C                   Dr.
               To B/R A/C
--------------------------------------------------------
  1. On the due date when the intimation of actual realisation of bill is received from bank:
Bank A/C                                                  Dr.
               To Bill sent for collection A/C
--------------------------------------------------------
Intimation → Going to happen.
Case 5
Retiring of Bill
If Y pay the amount before due date
Bank A/C        Dr.
Rebate A/C    Dr.
        To B/R A/C
B/P A/C         Dr.
    To Bank A/c
 To Rebate A/C
Dishonour of Bill
Case 1
  • Dishonour of bill is retained by drawer itself:
Dishonour of bill and noting charge paid by X
Y A/C (Debtor)   Dr.
     To B/R A/C
     To Cash A/c
B/P A/C           Dr.
N.C A/C           Dr.
(Creditor) To X A/C
Case 2
  • Dishonour of bill by Bank:
Bill discounted with bank & dishonoured
Y A/C (Debtor)   Dr.
(Cr.) To Bank A/C
[Bill+Noting Charge]
B/P A/C           Dr.
N.C A/C           Dr.
(Creditor) To X A/C
Case 3
  • When the bill endorsed to third party and dishonoured:
Bill endorse to third party & dishonoured
Y A/C    Dr.
   To Z A/C
B/P A/C     Dr.
N.C A/C      Dr.
  To X A/C
  (Creditor)
X A/C Dr.
 To B/R A/C
To Cash A/C   (Noting Charge)
INSOLVENCY OF DEBTOR [DRAWEE]
TRANSACTION
X [DRAWER]
Y [DRAWEE]
DISHONOUR OF BILL
Y A/C                  Dr.
      To B/R A/C
B/P A/C           Dr.
TO X A/C
CASH RECEIVED FROM PROPERTY & BAD DEBTS
BANK A/C          Dr.
BAD DEBT A/C Dr.
TO Y A/C
X A/C                  Dr.
TO BANK A/C
TO DEFINENCY A/C
RENEWAL AND INTEREST
TRANSACTION
X [DRAWER]
Y [DRAWEE]
1ST OF ALL, AN ENTRY IS PASSED FOR THE CANCELLATION OF THE OLD BILL
Y A/C                    Dr.
TO B/R A/C
     [BILL
B/P A/C             Dr.
TO X A/C
CANCELLED]
WHEN Y PAY’S THE INTEREST IN CASH
CASH A/C           Dr.
TO INTEREST A/C
INTEREST A/C    Dr.
TO CASH A/C
WHEN Y DOES NOT PAY THE AMOUNT OF INTEREST IN CASH
Y A/C                    Dr.
TO INTEREST A/C
INTEREST A/C   Dr.
TO X A/C
WHEN A NEW BILL IS RECEIVED FROM Y
B/R A/C                 Dr.
TO Y A/C
[RENEWAL
X A/C                  Dr.
TO B/P A/C
OF BILL]


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The End

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