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

2. Gress Period = 3 Days
3. 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

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2. 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

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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