This action might not be possible to undo. Are you sure you want to continue?
L EARNING OBJECTIVES
After studying this chapter, you will be able to : • state the meaning of bill of exchange and a promissory note; • distinguish between a bill of exchange and a promissory note; • state the advantages of bill of exchange;
• explain the meaning of different terms involved in the bill transaction, • record bill of exchange transactions in journal;
• record transactions relating to dishonour, retirement and renewal of bill; • describe the uses of bill receivable and bill payable book;
T li R b E u C p N re © e b to t
Box 1 Hundies and its Types
oods can be sold or bought for cash or on credit. When goods are sold or bought for cash, payment is received immediately. On the other hand, when goods are sold/bought on credit the payment is deferred to a future date. In such a situation, normally the firm relies on the party to make payment on the due date. But in some cases, to avoid any possibility of delay or default, an instrument of credit is used through which the buyer assures the seller that the payment shall be made according to the agreed conditions. In India, instruments of credit have been in use since time immemorial and are popularly known as Hundies. The hundies are written in Indian languages and have a large variety (refer box1).
There are a variety of hundies used in our country. Let us discuss some of the most common ones. Shahjog Hundi: This is drawn by one merchant on another, asking the latter to pay the amount to a Shah. Shah is a respectable and responsible person, a man of worth and known in the bazaar. A shah-jog hundi passes from one hand to another till it reaches a shah, who, after reasonable enquiries, presents it to the drawee for acceptance of the payment. Darshani Hundi : This is hundi payable at sight. It must be presented for payment within a reasonable time after its receipt by the holder. It is similar to a demand bill.
• state the meaning and use of accommodation bill.
Dev Prakash Sharma/VIII Proof/22/12/2009
Muddati Hundi: A muddati or miadi hundi is payable after a specified period of time. This is similar to a time bill. There are few other varieties of hundies like Nam-jog hundi, Dhani-jog hundi, Jawabee hundi, Hokhami hundi, Firman-jog hundi, and so on.
Now a days these instruments of credit are called bills of exchange or promissory notes. The bill of exchange contains an unconditional order to pay a certain amount on an agreed date while the promissory note contains an unconditional promise to pay a certain sum of money on a certain date. In India these instruments are governed by the Indian Negotiable Instruments Act 1881. 8.1 Meaning of Bill of Exchange
According to the Negotiable Instruments Act 1881, a bill of exchange is defined as an instrument in writing containing an unconditional order, signed by the maker, directing a certain person to pay a certain sum of money only to, or to the order of a certain person or to the bearer of the instrument. The following features of a bill of exchange emerge out of this definition. • A bill of exchange must be in writing. • It is an order to make payment. • The order to make payment is unconditional. • The maker of the bill of exchange must sign it. • The payment to be made must be certain. • The date on which payment is made must also be certain. • The bill of exchange must be payable to a certain person. • • The amount mentioned in the bill of exchange is payable either on demand or on the expiry of a fixed period of time. It must be stamped as per the requirement of law.
A bill of exchange is generally drawn by the creditor upon his debtor. It has to be accepted by the drawee (debtor) or someone on his behalf. It is just a draft till its acceptance is made. For example, Amit sold goods to Rohit on credit for Rs. 10,000 for three months. To ensure payment on due date Amit draws a bill of exchange upon Rohit for Rs. 10,000 payable after three months. Before it is accepted by Rohit it will be called a draft. It will become a bill of exchange only when Rohit writes the word “accepted” on it and append his signature thereto communicate his acceptance.
T li R b E u C p N re © e b to t
Bill of Exchange
8.1.1 Parties to a Bill of Exchange There are three parties to a bill of exchange: (1) Drawer is the maker of the bill of exchange. A seller/creditor who is entitled to receive money from the debtor can draw a bill of exchange upon the buyer/debtor. The drawer after writing the bill of exchange has to sign it as maker of the bill of exchange. (2) Drawee is the person upon whom the bill of exchange is drawn. Drawee is the purchaser or debtor of the goods upon whom the bill of exchange is drawn. (3) Payee is the person to whom the payment is to be made. The drawer of the bill himself will be the payee if he keeps the bill with him till the date of its payment. The payee may change in the following situations: (a) In case the drawer has got the bill discounted, the person who has discounted the bill will become the payee; (b) In case the bill is endorsed in favour of a creditor of the drawer, the creditor will become the payee. Normally, the drawer and the payee is the same person. Similarly, the drawee and the acceptor is normally the person. For example, Mamta sold goods worth Rs.10,000 to Jyoti and drew a bill of exchange upon her for the same amount payable after three months. Here, Mamta is the drawer of the bill and Jyoti is the drawee. If the bill is retained by Mamta for three months and the amount of Rs. 10,000 is received by her on the due date then Mamta will be the payee. If Mamta gives away this bill to her creditor Ruchi, then Ruchi will be the payee. If Mamta gets this bill discounted from the bank then the bankers will become the payee. In the above mentioned bill of exchange, Mamta is the drawer and Jyoti is the drawee. Since Jyoti has accepted the bill, she is the acceptor. Suppose in place of Jyoti the bill is accepted by Ashok then Ashok will become the acceptor.
Mamta New Delhi Rs.10,000 April 01, 2006 Three months after date pay to me or my order, the sum of Rupees Ten Thousand only, for value received. Stamp
Accepted (signed) Jyoti 1.4.2006 73-B, Mahipalpur New Delhi 110 037
T li R b E u C p N re © e b to t
To Figure 8.1 : Showing specimen of bills of exchange
(Signed) Mamta 196, Karol Bagh New Delhi
Jyoti 73-B, Mahipalpur New Delhi 110 037
282 Test Your Understanding - I
Write ‘Ture’ or ‘False’ against each statement regarding a bill of exchange: (i) (ii) A bill of exchange must be accepted by the payee. A bill of exchange is drawn by the creditor.
(iii) A bill of exchange is drawn for all cash transaction. (iv) A bill payable on demand is called Time bill; (v) The person to whom payment is to be made in a bill or exchange is called payee. (vi) A negotiable instrument does not require the signature of its maker. (vii) The hundi Payable at sight is called Darshani hundi. (viii) A negotiable instrument is not freely transferable. (ix) Stamping of promissory note is not mandatory. (x)
The time of payment of a negotiable instrument need not be certain.
8.2 Promissory Note
According to the Negotiable Instruments Act 1881, a promissory note is defined as an instrument in writing (not being a bank note or a currency note), containing an unconditional undertaking signed by the maker, to pay a certain sum of money only to or to the order of a certain person, or to the bearer of the instrument. However, according to the Reserve Bank of India Act, a promissory note payable to bearer is illegal. Therefore, a promissory note cannot be made payable to the bearer. This definition suggests that when a person gives a promise in writing to pay a certain sum of money unconditionally to a certain person or according to his order the document is called is a promissory note. Following features of a promissory note emerge out of the above definition: • • • • • • It must be in writing It must contain an unconditional promise to pay. The sum payable must be certain. It must be signed by the maker.
• It should be properly stamped. A promissory note does not require any acceptance because the maker of the promissory note himself promises to make the payment.
The maker must sign it. It must be payable to a certain person.
T li R b E u C p N re © e b to t
Bill of Exchange Ashok Kumar Rs. 30,000
283 New Delhi 01 April, 2006
Three months after date I promise to pay Sh. Harish Chander or order a sum of Rupees Thirty Thousand only for value received. Stamp To Harish Chander 24, Ansari Road Darya Ganj New Delhi 110 002 Ashok Kumar 2, Dariba Kalan Candani Chowk Delhi 110 006
8.2.1 Parties to a Promissory Note
There are two parties to a promissory note. • Maker or Drawer is the person who makes or draws the promissory note to pay a certain amount as specified in the promissory note. He is also called the promisor. • Drawee or Payee is the person in whose favour the promissory note is drawn. He is called the promisee. Generally, the drawee is also the payee, unless, it is otherwise mentioned in the promissory note. In the specimen of promissory note(refer figure 8.2), Ashok Kumar is the drawer or maker who promises to pay Rs.30,000 and Harish Chander is the drawee or payee to whom payment is to made. If Harish Chander endorses this promissory note in favour of Rohit then Rohit will become the payee. Similarly, if Harish Chander gets this promissory note discounted from the bank then the bank will become the payee.
Box 2 Distinction between a Bill of Exchange and Promissory Note
S. No 1 2
Both a bill of exchange and a promissory note are instruments of credit and are similar in many ways. However, there are certain basic differences between the two. Basis Bill of Exchange Promissory Note Drawer It is drawn by the creditor It is drawn by the debtor
Order or Promise It contains an order to make and Parties payment. There can be three parties to it, viz. the drawer, the drawee and the payee.
T li R b E u C p N re © e b to t
Fig. 8.2 : Showing specimen of promissory note
It contains a promise to make payment. There are only two parties to it, viz. the drawer and the payee.
3 Advantages of Bill of Exchange The bills of exchange as instruments of credit are used frequently in business because of the following advantages: • Framework for relationships: A bill of exchange represents a device. However. This is due to the fact that terms and conditions of the relationships between debtor and creditor such as amount required to be paid. therefore. given by the holder to the drawer Fig. 4. Payee Notice In case of its dishonour due No notice needs to be givenin notice of dishonour is to be case of its dishonour. date of payment. Conclusive proof: The bill of exchange is a legal evidence of a credit transaction implying thereby that during the course of trade buyer has obtained credit from the seller of the goods. which provides a framework for enabling the credit transaction between the seller/ creditor and buyer/debtor on an agreed basis. Easy transferability: A debt can be settled by transferring a bill of exchange through endorsement and delivery. place of payment are clearly mentioned in the bill of exchange. if any. • Certainty of terms and conditions: The creditor knows the time when he would receive the money so also debtor is fully aware of the date by which he has to pay the money. Drawer cannot be the payee of it. • • • o n T li R b E u C p N re © e b to t h s d e . interest to be paid. In the event of refusal of making the payment. 5. he is liable to pay to the seller.284 3 Acceptance It requires acceptance by the drawee or someone else on his behalf. the law requires the creditor to obtain a certificate from the Notary to make it a conclusive evidence of the happening. Accountancy It does not require any acceptance. the seller of goods even after extension of credit can get payment immediately either by discounting the bill with the bank or by endorsing it in favour of a third party. Convenient means of credit: A bill of exchange enables the buyer to buy the goods on credit and pay after the period of credit. Drawer and payee can be the same party.3 Distinction between bills of exchange and promissory note 8. 8.
Bill of Exchange Test Your Understanding . This process of encashing the bill with the bank is called discounting the bill. the Government declared a holiday on April 08 which happened to be the day on which a bill of exchange drawn by Gupta upon Verma for Rs. The bank shall makes the payment of the bill after deducting some interest (called discount in this case). will be the date of maturity for this bill. falls on a public holiday then the April 07 will be the maturity date. 8. In arriving at the maturity date three days. However. then the date of maturity will be the next working day immediately after the holiday.e. o n T li R b E u C p N re © e b to t h s d e . In this case if April 08. i. Thus. (ii) Transfer of a negotiable instrument to another person by signing on it. the instrument will become due on the preceding business day. if a bill dated March 05 is payable 30 days after date it. by the Government of India which may happen to be the date of maturity of a bill of exchange. where the date of maturity is a public holiday. known as days of grace. must be added to the date on which the period of credit expires instrument is payable. (iii) In a promissory note. 285 8. But when an emergent holiday is declared under the Negotiable Instruments Act 1881. he can approach the bank for encashment of the bill before the due date.20. The bank gets the amount from the drawee on the due date. i. therefore. the due date would be April 08.000 became due for payment. 33 days after March 05 If it were payable one month after date. falls due on April 07. has been declared a holiday under the Negotiable Instruments Act. (iv) A person who endorses the promissory note in favour of another is known as____________.5 Discounting of Bill If the holder of the bill needs funds. Since April 08. April 09. one month and 3 days after March 05. is known as _____________. the person who makes the promise to pay is called as ____________. For example.II Fill in the blanks with suitable word(s) (i) The person to whom the amount mentioned in the promissory note is payable is known as _____________.e.4 Maturity of Bill The term maturity refers the date on which a bill of exchange or a promissory note becomes due for payment.
The bill can be initially endorsed by the drawer by putting his signatures at the back of the bill along with the name of the party to whom it is being transferred. In case of a promissory note for the maker it is a bills payable and for the person in whose favour the promissory note is drawn it is a bills receivable. 8.7. 2. T li R b E u C p N re © e b to t Dr. and (a) get it collected on date of maturity directly. the following two entries are recorded: On sending the bill for collection Bills Sent for Collection A/c To Bills Receivable A/c Dr. The act of signing and transferring the bill is called endorsement. i.e. 1. He can get the bill discounted from the bank. 8. when the bill of exchange is retained by the receiver with him and sent to bank for collection a few days before maturity.6 Endorsement of Bill Any holder may transfer a bill unless its transfer is restricted. Bills receivables are assets and Bills payable are liabilities. the bill has been negotiated containing words prohibiting its transfer. Dr. it is a bills payable. Bills and Notes are used interchangeably. He can endorse the bill in favour of his Creditor. it is a bill receivable.286 Accountancy 8. or (b) get it collected through the banker.1 In the Books of Drawer/Promissor A bill receivable can be treated in the following four ways by its receiver. 3. He can retain it till the date of maturity. (1) When the bill of exchange is retained by the receiver with him till date of its maturity: On receiving the bill Bills Receivable A/c To Debtors A/c o n On maturity of the bill Cash/Bank A/c To Bills Receivable A/c However.7 Accounting Treatment For the person who draws the bill of exchange and gets it back after its due acceptance. The accounting treatment in the books of receiver under all the four alternatives is given below under the assumption that the bill is duly honoured on maturity by the acceptor. h s d e . For the person who accepts the bill.
7. Dr. Dr. On endorsing the bill Creditor’s A/c To Bills Receivable A/c On Maturity No entry is recorded because the bill has been transferred in favour of the creditor. therefore. Dr. no entry is recorded in the books of drawer or endorser. (3) When the bill is endorsed by the receiver in favour of his creditor: On receiving the bill Bills Receivable A/c To Debtor’s A/c Dr.2 In the Books of Acceptor/Promissor The following journal entries are recorded in the books of the acceptor or promisesor under all the four alternatives. Dr. It makes no difference whether the bill is retained discounted. h s d e . 8. endorsed or pledged. the bank collects the amount of the bill from the acceptor and no journal entry is recorded in the books of the drawer. Hence. To Bills Sent for Collection A/c 287 (2) When the receiver gets the bill discounted from the bank: On receiving the bill Bills Receivable A/c To Debtors A/c On discounting the bill Bank A/c Discount A/c To Bills Receivable A/c Dr. On Maturity No entry is recorded because the bill becomes the property of the bank. therefore the creditor becomes its owner and will receive the payment on maturity. o n On accepting the bill Creditor’s A/c To Bills Payable A/c On Maturity of the bill Bills Payable A/c To Bank A/c T li R b E u C p N re © e b to t Dr.Bill of Exchange On receiving the advice from the bank that the bill has been collected Bank A/c Dr.
To Debtor’s A/c To Bills Payable A/c Collection of the bill 2. To Bill Receivable A/c Bank A/c Dr. To Bills payable A/c On maturity of the bill Bills payable A/c Dr. Bills Payable A/c Dr. Purchases A/c Dr. To Bills Receivable A/c No entry Cash/Bank A/c Dr. To Bills Receivable A/c To Cash/Bank A/c Purchases A/c Dr. To Sales A/c To Creditor’s A/c Receiving/Accepting the bill Bills Receivable A/c Dr. Books of Debtor/ Acceptor Transaction Sale/Purchase of goods Receiving /Accepting the bill Sending the bill for collection On Receiving from the bank advice that the bill has been collected 3. To Creditor’s A/c h s d e Creditor’s A/c Dr.288 Box 3 Accountancy 1. Creditor’s A/c Dr. No entry Discount A/c Dr. To Debtor’s A/c Bills sent for collection A/c Dr. To Bank A/c . When the drawer gets the bill discounted from the bank Transaction Books of Creditor/Drawer Debtor’s A/c To Sales A/c Dr. To Bills Payable A/c Bills Payable A/c Dr. To Bill Sent for Collection A/c No entry Bills Receivable A/c Dr. When the drawer retains the bill with him till the date of its maturity and gets the same collected directly Transaction Books of Creditor/Drawer Books of Debtor/ Acceptor Sale/Purchase of goods Debtor’s A/c Dr. When the bill is retained by the drawer with him and sent to bank for collection a few days before maturity Books of Creditor/Drawer Debtor’s A/c To Sales A/c Dr. Sale/Purchase of goods o n Receiving /Accepting the bill Discounting the bill T li R b E u C p N re © e b to t Bills Receivable A/c Dr. To Debtor’s A/c Bank A/c Dr. To Creditor’s A/c Creditor’s A/c Dr. To Bank A/c Books of Debtor/ Acceptor Purchases A/c Dr.
Books of Debtor/ Acceptor 289 Transaction Sale/Purchase of goods Receiving /Accepting the bill Endorsing the bill On maturity of the bill Purchase A/c Dr.000 Bills payable A/c Dr. 20. Date Particulars o n 2006 Jan 01 Sumit’s A/c To Sales A/c (Sold goods to Sumit’s on credit) T li R b E u C p N re © e b to t Books of Amit Journal L. Debit Amount Rs.000 .a from his bank (iii) Amit endorsed the bill to his creditor Ankit (iv) Amit retained the bill and on March.000 to Sumit on credit on Jan 01. To Bank A/c h s d e Credit Amount Rs.000 Jan 01 Bills Receivable A/c To Sumit’s A/c (Received Sumit’s acceptance payable after three months) 20. To Creditor’s A/c Creditor’s A/c Dr. When the bill is endorsed by the drawer in favour of his creditor Books of Creditor/Drawer Debtor’s A/c To Sales A/c Dr. 2006.F. 20. To Debtor’s A/c Creditor’s A/c Dr. Sumit accepted the bill and returned it to Amit. 31 2006 Amit sent the bill for collection to its bank. No entry To Bills Receivable A/c No entry The journal entries to be recoded in the books of the drawer and the acceptor under all the four cases have been summarised below. Sumit met his acceptance on maturity. To Bills payable A/c Bills Receivable A/c Dr. Record the necessary journal entries under the following circumstances: (i) (ii) Amit retained the bill till the date of its maturity and collected directly Amit discounted the bill @ 12% p. On April 05.20. 2006 bank advice was received. 20.Bill of Exchange 4. Solution (i) When the bill was retained till its maturity.000 Dr. Dr. Amit drew a bill of exchange upon Sumit for the same amount for three months. Illustration 1 Amit sold goods for Rs.
01 Jan.000 20.000 20.000 (ii) When the bill was discounted from the book. 20. 2006 Jan 01 Sumit’s A/c To Sales A/c (Sold goods to Sumit’s) Jan 01 Bills Receivable A/c Dr. Accountancy 20.400 600 Particulars L. Journal Date Particulars L. 01 Bills Receivable A/c To Sumit’s A/c (Received Sumit’s acceptance for three months) Ankit’s A/c Dr.000 20.000 19.000 .000 h s d e 20. To Bills Receivable A/c (Sumit acceptance endorsed in favour of Ankit) T li R b E u C p N re © e b to t 20.290 Apr. 01 Sumit’s A/c To Sales A/c (Sold goods to Sumit’s on credit) o n Jan. To Bills Receivable A/c (Sumit’s acceptance discounted with the bank) (iii) When Amit endorsed the bill in favour of his creditor Ankit. Debit Amount Rs.000 20.05 Bank A/c To Bills Receivable A/c (Sumit met his acceptance on maturity) Dr. Discount A/c Dr. Dr. 20. Journal Date 2006 Jan.F.F.000 Credit Amount Rs.000 20. Debit Amount Rs. 20.000 Credit Amount Rs. To Sumit’s A/c (Received Sumit’s acceptance three months) Jan 01 Bank A/c Dr. 20. 20.000 Dr.000 Dr.
000 h s 20. 2006 Jan.000 Dr.000 20.000 20. Dr. Journal Date Particulars L.F. 20.F.000 20.000 .000 d e Credit Amount Rs.000 Particulars L. 20. 31 Bills Sent for Collection A/c To Bills Receivable A/c (Bills sent for collection) Apr.000 Dr. 01 Amit’s A/c Dr. 05 Dr.000 20.000 20. 20. 20.Bill of Exchange (iv) When the bill was sent for collection by Amit to the bank. To Bill’s Payable A/c (Accepted bill drawn by Amit payable after three months) Bills payable A/c To Bank A/c (Met acceptance maturity) T li R b E u C p N re © e b to t Dr. Debit Amount Rs. 20. 04 Jan.000 20. 01 Purchases A/c To Amit’s A/c (Purchases goods from Amit on credit) o n Apr. Bank A/c Dr. 01 Sumit’s A/c To Sales A/c (Sold goods to Sumit’s on credit) Jan. 20. Debit Amount Rs. To Bills sent for collection A/c (Bills sent for collection collected by the bank) The following journal entries will be made in the books of Sumit under all the four circumstances: In the books of Sumit Journal Date 2006 Jan.000 20.000 291 Credit Amount Rs. 01 Bills Receivable A/c To Sumit’s A/c (Received Sumit’s acceptance payable after three months) Mar.
On May 15. Credit Amount Rs. 2006 Ramesh sold goods for Rs. 8.000 8. Deepak accepted a bill of exchange drawn upon him by Ramesh payable after three months.15 Date 2006 Mar.000 to Deepak on credit. h s 8. 8. Apr.18 Purchases A/c To Ramesh A/c (Sold goods to Deepak on credit) Ramesh’s A/c To Bills Payable A/c (Accepted Ramesh’s draft payable after three months) T li R b E u C p N re © e b to t Dr. 8. 8.a.000 250 d e Credit Amount Rs. 8.15 Bills Receivable A/c Dr.000 Dr.F.15 Deepak A/c To Sales A/c (Sold goods to Deepak on credit) Mar. Poonam discounted the bill with her bank @ 12% p. 8. 8. On April. Dr.000 Debit Amount Rs. On the due date Deepak met the bill.000 Dr.250) Book of Deepak Journal Dr.250 Particulars L.05 o n Mar.000 Bills Payable A/c To Bank A/c (Met the acceptance in favour of Ramesh on maturity) 8. Record the necessary journal entries in the books of Ramesh. Books of Ramesh Journal Date Particulars L.000 8.000 8. To Deepak A/c (Received Deepak’s acceptance for three months) Poonam’s A/c To Bills Receivable A/c To Discount Received A/c (Bill endorsed in favour of Poonam in full settlement of her debt of Rs. Poonam.000 .292 Illustration 2 Accountancy On March 15.05 Jun.F.250. Deepak. 8. Debit Amount Rs. 2006 Mar.000 8. 15 Ramesh endorsed the bill in favour of his creditor Poonam in full settlement of her debt of Rs.000 8.
On the date of maturity the bill was dishonoured by Vishal. Discount Allowed A/c Dr. 10. To Bill Sent for Collection A/c Illustration 3 On Jan 01.250 in full settlement) Bank A/c Discount Allowed A/c To Bills Receivable A/c (Biils receivable encashed on maturity) Dr. In this situation. Debit Amount Rs.F.Bill of Exchange Books of Poonam Journal Date Particulars L.8 Dishonour of a Bill A bill is said to have been dishonoured when the drawee fails to make the payment on the date of maturity. The entries of dishonour will be as follows in the books of Anju (receiver): When the bill was kept by Anju with her till maturity Manju’s A/c Dr. 8. 8. Vishal accepted the bill and returned it to Shieba.000 and drew upon him a bill of exchange for 2 months.250 Mar. liability of the acceptor is restored. To Sandhaya’s A/c When the bill was discounted by Anju with his bank Manju’s A/c Dr. the entries made on the receipt of the bill should be reversed. which was dishonoured.2006 Shieba sold goods to Vishal for Rs. To Ramesh’s A/c (Ramesh endorsed Deepak’s acceptance in our favour for discharge his dept of Rs. Therefore. Anju received bill of exchange duly accepted by Manju. To Bank A/c When the bill was sent for collection by Anju Manju’s A/c Dr.15 8. To Bill Receivables A/c When the bill had been endorsed by Anju in favour of Sandhya Manju’s A/c Dr. For example.000 250 293 Credit Amount Rs.000 d e . 2006 Mar.920 80 h s 8. 8. Dr. Record the necessary entries in all the cases listed below in the books of Shieba and Vishal: o n T li R b E u C p N re © e b to t 7.15 Bills Receivable A/c Dr.
10. Solution (i) When the bill was kept by Shieba till its maturity.F.F.000 Dr. Debit Amount Rs. To Bills Receivable A/c (Vishal’s Bill dishonoured his acceptance) Vishal’s A/c To Bank A/c (Discounted bill dishonoured by Vishal) Dr.800 200 10.000 h s d e 10.000 10.01 Vishal’s A/c To Sales A/c (Sold goods to Vishal) o n Mar.000 Dr.000 10.01 Vishal’s A/c To Sales A/c (Sold goods to Vishal) Jan.000 Journal Particulars L.000 10.294 (i) When the bill kept by Shieba till its maturity.000 Dr. 01 Bills Receivable A/c To Vishal’s A/c (Received Vishal’s acceptance) Jan. Dr. (ii) When the bill is discounted by Shieba for Rs.000 Debit Amount Rs.04 Jan. 10. Credit Amount Rs. 01 Bills Receivable A/c To Vishal’s A/c (Received Vishal’s acceptance) Mar.000 10. Discount A/c Dr. (iii) When the bill is endorsed to Lal Chand by Shieba. 10. 01 Bank A/c Dr. 10. Books of Shieba Journal Date Particulars L. 04 Vishal’s A/c To Bills Receivable A/c (Vishal dishonoured his acceptance) (ii) When the bill was discounted by shieba Date 2006 Jan. 10. T li R b E u C p N re © e b to t Dr. 10.000 Credit Amount Rs. Accountancy 2006 Jan. 10.000 9.000 . 200.
000 10.000 Dr. To Shieba’s A/c (Acceptance in favour of shieba dishonoured) T li R b E u C p N re © e b to t Dr.1 Noting Charges A bill of exchange should be duly presented for payment on the date of its maturity.000 d e Credit Amount Rs. 10. 10.000 10. 10.000 . 01 Bills Receivable A/c To Vishal’s A/c (Received Vishal’s acceptance) Jan. Debit Amount Rs.000 h s 10.000 Dr.8.000 Jan. Debit Amount Rs. 10.Bill of Exchange (iii) When the bill was endorsed by Shieba to Lal Chand Journal Date Particulars L.04 Vishal’s A/c To Lal Chand A/c (Endorsed bill dishonoured by Vishal) Whereas. The drawee is absolved of his liability if the bill is not duly presented.000 10. 2006 Jan.01 Purchases A/c To Shieba’s A/c (Purchased good from shieba) 8.000 10. 10. 01 Shieba’s A/c To Bills Payable A/c (Accepted Shieba’s draft) Mar. the following entries will be recorded Books of Vishal Journal Date 2006 Jan. 10. 01 Lal Chand A/c To Bills Receivable A/c (Vishal’s acceptance endorsed in favour of Lal Chand) Mar.01 Vishal’s A/c To Sales A/c (Sold goods to Vishal) Dr.000 295 Credit Amount Rs. o n Jan. 04 Bills Payable A/c Dr.000 Particulars L. 10.000 10.000 Dr. Dr. in the book of Vishal.F. 10.F.
01. • If the bill is not expressly dishonoured. The journal entries will be recorded in the books of Azad and Bunty as given below under the following circumstances: o n (a) (c) When the bill was kept by Azad till maturity. it may preferably to be got noted by Notary Public. ultimately these have to be borne by the drawee. To establish beyond doubt that the bill was dishonoured. For recording the noting charges in his book the drawee opens Noting Charges Acccount.000 to Bunty and immediately drew a bill upon him on Jan. When the bank pays on discounted bill Drawee’s A/c To Bank A/c When the bank pays in the event of sending the bill for collection to the bank Drawee’s A/c Dr. 50 were paid by the holder of the bill as noting charges. For providing this service.296 Accountancy Proper presentation of the bill means that it should be presented on the date of maturity to the acceptor during business working hours. For example.a. entries will be recorded as: . h s d e (b) When the bill was discounted by Azad with his bank immediately @ 12% p. In the books of Azad. Dr. a fees is charged by the Notary Public which is called Noting Charges. That is why the drawee is invariably debited in the drawer’s books. fact and reasons of dishonour. Noting authenticates the fact of dishonour. hence. To Bank A/c It may be noticed that whosoever pays the noting charges. This is because he is responsible for the dishonour of the bill and. Azad sold goods for Rs. 15. When the bill was endorsed by Azad in favour of his creditor Chitra. despite its due presentation. On maturity the bill was dishonoured and Rs. the reasons why he treats it as dishonoured and. • The amount of noting charges. T li R b E u C p N re © e b to t Dr. The entries recorded for noting charges in the drawers book are as follows: When Drawer himself pays Drawee’s A/c To Cash A/c Where endorsee pays Drawee’s A/c To Endorsee A/c Dr. 2006 payable after 3 months. The following facts are generally noted by the Notary: • Date. He debits the Noting Charges Account and credits the Drawer’s Account. he has to bear these expenses.
050 . 50 as noting charges) (ii) When the bill was discounted with the bank. 2006 Jan.000 d e Credit Amount Rs.050 h s 15. Dr. 15. 14. 01 Bills Receivable A/c To Bunty’s A/c (Received Bunty’s acceptance) Apr.F.000 Dr.000 Apr. 01 Bank A/c Discount A/c To Bills Receivable A/c (Bunty’s acceptance discounted) T li R b E u C p N re © e b to t Dr. 15.01 Bunty’s A/c To Sales A/c (Sold goods to Bunty) o n Jan.000 Dr. 04 Bunty’s A/c Dr.000 50 15. 04 Bunty’s A/c To Bills Receivable A/c To Cash A/c (Bunty dishonoured his acceptance and paid Rs. 15.550 450 15. 15. 15.050 Particulars L. Journal Date 2006 Jan. Debit Amount Rs.000 15. Jan. 01 Bills Receivable A/c To Bunty’s A/c (Received Bunty’s acceptance payable after three months) Jan. Dr. Debit Amount Rs.Bill of Exchange (i) When the bill was retained till its maturity Books of Azad Journal Date Particulars L.000 15. Dr.F. 15.01 Bunty’s A/c To Sales A/c (Sold goods to Bunty) Dr.000 297 Credit Amount Rs.000 15.000 Dr. To Bank A/c (Bunty dishonoured his acceptance on maturity and bank paid noting charges) 15.
15.000 15. 50 as noting charges) The following journal entries will be made in the books of Bunty in all the three cases.000 Dr.F.000 Jan. 04 Purchases A/c To Azad’s A/c (Purchase goods from Azad) Jan. 2006 Jan. 15.000 15. 15.000 Dr. If it is so. 15.050 Credit Amount Rs.F. To Azad’s A/c (Acceptance in favour of Azed dishonoured) T li R b E u C p N re © e b to t Dr.000 h s d e 15. 04 Bunty’s A/c To Chitra’s A/c (Bunty dishonoured his acceptance on maturity and chitra paid Rs. Noting charges A/c Dr.01 Bill’s Receivable A/c To Bunty’s A/c (Received Bunty’s acceptance) Dr. 01 Bunty’s A/c To Sales A/c (Sold goods to Bunty) Jan.000 Dr. Dr.298 (iii) When the bill was endorsed to Chitra Journal Date Particulars L. therefore.000 15.000 15.01 8.000 50 15. Debit Amount Rs. 15.9 Renewal of the Bill Sometimes. the old bill is o n Apr. 01 Chitra’s A/c To Bills Receivable A/c (Bunty’s acceptance endorsed in favour of Chitra) Apr.000 Credit Amount Rs. Accountancy Debit Amount Rs. the acceptor of the bill foresees that it may be difficult to meet the obligation of the bill on maturity and may.050 Particulars L. 15. 01 Azad’s A/c To Bills Payable A/c (Accepted Azad’s draft) Bills Payable A/c Dr. Book of Bunty Journal Date 2006 Jan. 15.050 . approach the drawer with the request for extension of time for payment. 15.
The new bill was met on maturity by Mohan. As for the interest invalued. The interest is paid in cash or may be included in the amount of the new bill. He further agreed to pay interest in cash to Ravi @ 12% p. if it is not paid in cash.Bill of Exchange 299 cancelled and the fresh bill with new terms of payment is drawn and duly accepted and delivered. To Bills Receivable A/c Bills Payable A/c Dr. Books of Ravi Journal Particulars L.000 and acceptance of a new bill for the balance of Rs. This is called renewal of the bill. Sometimes. for interest and for the acceptance of the new bill in the books of the drawer and drawee are given below: Transaction Books of Drawer Books of Drawee Cancellation of old bill Interest New bill Drawee’s A/c Dr. the following entries will be recorded in the books of Ravi and Mohan.000 is cancelled on a cash payment of Rs.000 h s d e Drawer’s A/c Dr. 3. a part of the amount due may be paid and the new bill may be drawn only for the balance. the drawer debits the drawee’s account and credits the interest account. 2006 Ravi sold goods to Mohan for Rs. o n Date T li R b E u C p N re © e b to t Drawee’s A/c To Interest A/c Dr. 01 Mohan’s A/c To Sales A/c (Sold goods to Mohan) 18. For example. Rs. 2006 Feb. To Drawer’s A/c For example on February 01. 7.18.000 . 10. Debit Amount Rs. Since the cancellation of bill is mutually agreed upon noting of the bill is not required. In this case.F. On the date of maturity of the bill Mohan requested Ravi to cancel the old bill and a new bill upon him for a period of 2 months.a.000. The journal entries in the books of the drawer and the drawee will be the same as that of dishonour of bill. a bill of Rs.000 plus interest as agreed between the parties. Bill Receivable A/c To Drawee’s A/c Dr. Dr. and the drawee debits the interest and credits the drawer’s account in his books. Ravi agreed to Mohan’s request and cancelled the old bill and drew a new bill. The dreawee may have to pay interest to the drawer for the extended period of credit.000 were paid by Mohan immediately and for the balance he accepted three months bill drawn upon him by Ravi. 18. The journal entries recorded in case of renewal for the cancellation of the old bill. 3. To Bills Payable A/c Credit Amount Rs. To Drawer’s A/c Interest A/c Dr.
000 18. 18. 18.000 300 Bill Payable A/c Dr. 3. 300 as interest) May 04 Bill’s Receivable A/c Cash A/c To Mohan’s A/c (Received new acceptance from Mohan) Jul.300 15. To Cash’s A/c Bills Payable A/c (Received cash from Ravi and his acceptance) o n Jul.000 h s d e Credit Amount Rs. To Bills Payable A/c To Cash A/c (Accepted new bill and paid cash for interest) T li R b E u C p N re © e b to t Dr.000 Dr.000 15. Accountancy 3. Rs.F. Bank A/c (Met acceptance of the new bill on maturity) 15. To Mohan’s A/c (Received Rs.000 15. 15.300 15. 01 Cash A/c Dr. 18.300 15. 01 Purchases A/c To Ravi A/c (Purchased goods from Ravi) Feb.01 Ravi’s A/c Dr.000 in cash from Ravi and an acceptance for the balance) May 01 Mohan’s Account To Bills Receivable A/c To Interest A/c (Cancelled old bill on renewal Rs.300 Feb.000 Dr.000 15.000 15.000 300 15.000 15. 300 charged as interest) May 04 Ravi’s A/c Dr. To Ravi A/c (Old bill cancelled on renewal. Dr. Debit Amount Rs.000 .000 Book of Mohan Journal Particulars L. 07 May 04 Bill Payable A/c Dr.000 300 Date 2006 Feb. 07 Bank A/c To Bills Receivable A/c (Mohan met his new acceptance) Dr. Interest A/c Dr.000 300 15. 15. Bills Receivable A/c Dr.000 3.300 15.
If the holder agrees to do so. 01. On March 04. 01 Babli’s A/c Dr. the bill is said to have been retired. Babli accepted the bill and returned it to Amit. 10.000 9. To Bills Receivables A/c In the books of the drawee Bills Payable A/c Cash A/c To Rebate on Bills A/c Dr.000 . Debit Amount Rs. To Sales A/c (Sold goods to Babli) Jan.Bill of Exchange 301 8.000 Mar. To encourage the retirement of the bill.000 10. 01 Bills Receivable A/c Dr. The following journal entries are recorded: In the books of the holder On retiring the acceptance and rebate allowed Cash A/c Dr. This happens when the drawee of the bill has funds at his disposal and makes a request to the drawer or holder to accept the payment of the bill before its maturity. the holder allows some discount called Rebate on bills for the period between date of retirement and maturity. Amit sold goods Rs.10 Retiring of the Bill There are instances when a bill of exchange is arranged to be retired before the due date by mutual understanding between the drawer and the drawee. The accounting treatment on the retirement of a bill is similar to the accounting treatment when a bill is honoured by the acceptor on the due date in the ordinary course. Rebate on bills A/c Dr. 2006 Babli retired her acceptance under rebate of 6% per annum. 04 Bank A/c Rebate on bills A/c To Bills Receivable A/c (Babli retired her acceptance and rebate allowed to him) 10. The only difference between the two relates to the granting of rebate. Dr. 10. The rebate is calculated at a certain rate of interest.950 50 h s d e Credit Amount Rs. The retiring of a bill draws a curtain on the bill transactions before the expiry of its normal term. 10. 2006 and immediately drew a bill on Babli for three month for the same amount. T li R b E u C p N re © e b to t L.000 to Babli on Jan. In the books of Amit Journal Particulars Date o n 2006 Jan.F. Dr. To Babli’s A/c (Received Babli’s acceptance for three months) Dr.000 10.
10.302 The recorded entries will be posted to the following ledger acounts Babli’s Account Dr.000 d e Credit Amount Rs.000 Dr. 01 Mar. 10.F. F. 10. 01 Particulars Babli Date 2006 Jan. Particulars Amount Rs. 2006 Mar 04 Cash Rebate on bill Book of Babli Journal Particulars L.000 10. Purchases Amount Rs.000 Sales Bills Receivable Bill Receivable Account Dr.F.000 Bills Payable .000 9. Date 2006 Jan. Amount Rs.000 Particulars J.000 Amit’s Account Date 2006 Jan.000 10. Date 2006 Jan. 9. F. F. J. 10.01 Amit’s A/c To Bills Payable A/c (Accepted Amit’s draft payable after three months) Dr.000 Dr. 04 Bill Payable A/c To Cash A/c To Rebate on bills A/c (Acceptance in favour of Amit retired and rebate received) T li R b E u C p N re © e b to t J. 10. h s Cr.000 Date 2006 Jan 06 Particulars Accountancy Cr. o n Date 2006 Jan.000 Date Particulars J.F. Amount Rs. 01 Purchases A/c To Amit A/c (Purchased goods from Amit) Jan. Dr.950 50 10. Debit Amount Rs. 01 Particulars J. 10.950 50 Cr.000 10. 04 J.000 10. Amount Rs. 10. 10. Amount Rs.000 10. 10.000 10.F.
e.000 2006 Jan. Amount Rs. The performa of a bills receivable book is given in Figure 8. renewal etc. purchases. Date Particulars J. Date Date of Received of Bill Bill T li R b E u C p N re © e b to t BillsReceivable Book Acceptor From Whom received Drawer Where Term Due payable Date Ledger Amount Cash Folio Book Folio h s d e Remarks Fig. 8. etc.000 Date 2006 Jan. place of payment. 8. All the details of the bill-date. their recording by means of journal entry for every transaction relating to the bills become a very cumbersome and time consuming exercise.3: Showing Format of Bills Receivable Book . retirement. 01 Particulars J. the bills receivables in the Bills Receivable Book and the bills payable in the Bills Payable Book. 01 Cash Rebate on bills Amit 8.F. relating to bills discounted. term.11 Bills Receivable and Bills Payable Books When large number of bills are drawn and accepted.11. F.g.. Amount Rs. acceptor’s name.3: o n No. An important point in connection with bill receivables and bills payable books is that they only record the transactions relating to drawing and acceptance of bills.000 10. 9950 50 10.1 Bills Receivable Book It has been designed as a summary of information regarding a duly accepted bill received by a drawer.Bill of Exchange Bills Payable Account Dr. amount. 10. endorsement. The reason for the use of subsidiary books for recording bill transactions is the same as that in the case of other subsidiary books for cash. simply have a passing reference in these books and the entries relating thereto are recorded as usual in the journal. It may be noted that the entry relating to honouring of bills appear in cash book. 303 Cr. all other transactions do not record the entire range of transactions relating to the bills. are entered in the bills receivable book for presentation and further reference. etc. It is then advisable to record them separately in special subsidiary books.
Warden’s draft for Rs.4: Showing specimen Bills Payable Book . 8. Mitra bill duly accepted for Rs. Date To Drawer of of Whom Bill Bill given The posting from this books are made to the debit of the account of every creditor to whom acceptance has been given and the periodical total of the books is credited to the ‘Bills Payable Account’ in the ledger. 07 Received from S.000 at two months. like any other subsidiary book. The proforma of a bills payable book is given in Fig. consider the following transactions and observe how these are recorded in bill receivable and bills payable book along with postings in the ledger accounts.32.11. This total is debited to the “Bills Receivable Account” whereas the account of every individual debtor whom the bills received is credited in the ledger. For example. The bills payable account representing the liability of the acceptor in respect of bills accepted by him. always has a credit balance. 09 Accepted S.70. (iii) Jan.8. The credit balance of this account on any particular date must be the same as the total amount worth of bills payable yet to be presented for payment as ascertained from the bills payable book. 39.2 Bills Payable Book It is maintained like a bills receivable book. (ii) Jan. relating to the bills accepted by a person or a party. payable three months after date.4 No. 8. 9.304 Accountancy The bills receivable book. This balance on any date would represent the amount of bills receivable unmatured and on hand. which are retained for being use in the future. o n T li R b E u C p N re © e b to t Bills Payable Book Payee Where Term payable Due Ledger Amount Date Cash Remarks date Folio paid Book Folio h s d e Fig. is totaled periodically. in case of need. if any. 13 Pradhan drew on his trader at three months date and the same was accepted for Rs.000. It is meant to record all the details.500 dated January 04. The Bills Receivable Account is the account of an asset and would always have a debit balance. 2006 (i) Jan. 1.
03 21.Meyers P.13 Pradhan 39.04 Jan.27 Jan.20 D.Ghosh Do G.500 31.Parson Madras 2 month Mar.000 Rs.17 05 Jan.Warden 02 A.Rakesh Self Do S.09 S.Ghosh Calcutta 2 month Mar.23 Total Date Received 2006 01 02 Jan.73. Book Folio S.07 Jan.000 03 Jan.23 Jan.16 To Whom given Drawer Payee Where payable Term Due Date Ledger Amount Date Paid Cash Remarks Book Folio 97.20 Bills Payable Book No.26 C.Roberts Mar.Parker 2 month Mar.17 Feb.Rakesh Bombay 3 month Amritsar 1 month Apr.500 305 h s d e .22 Jan.000 01 S. Date of of Bill Bill 2006 2006 S.000 20.21 Jan.Shah M.vakil Bombay 3 month Apr.14 03 Jan.Parkar 42.17 G.Mitra R.000 04 Jan.32.24 D.Dhiman A.Mitra R. 2.Kanga Self K.500 25.Dhiman D. 1.000 30.18 S.21 Jan.Bill of Exchange No.15 Jan.31 A.99.31 Pradhan 3 month Apr.000 35.23 06 Jan. Date of Bill 2006 2006 1.Robert 1 month Jan.500 o n Bills Receivable Book From Whom Drawer of Bill Whom received Acceptor Where Term payable Due Date Ledger Folio Amount Cash Re-marks Rs.21 04 Jan.000 T li R b E u C p N re © e b to t Total Rs.Kanga Bangalore1 month Feb.Warden 2 month Mar.
Mitra’s Account Date J. accepted by P.306 Accountancy (iv) Jan. F. F. 01 Particulars Sales Dr.32. 21 Received from G. (vii) Jan. Particulars J. payable two months after date.500 at one month to A.000 31. 14 Particulars Sales Dr. o n Date 2006 Jan.25. 1.F.000.000 G. 22 Received from D. (viii) Jan.42. 15 Bill Receivable 25. 31. Cr. Kanga accepted my draft at one month for Rs.000 Date J. 25.000 to S.32. Particulars J. (x) Jan. F. (v) Jan. 35. Ghosh’s Account Amount Rs. Rakesh at one month for Rs.500 R. Parkar. 2006 Jan. 31..000 Sales .20. Parson and drawn by M.000 Cr. Date 2006 Jan.32. Roberts. 27 Received from C.000 dated January 20. 2006 Jan. d e Amount Rs. 07 Bills Receovable 1. 23 K.Dhiman. Particulars J. 21 Bills Receivable h s Cr. (vi) Jan. A.F.Meyers.000 at three months from Jan. 17.000 Date J. Posting of recorded entries are as follow: Dr.000 at two months.500 2006 Jan. Date 2006 Jan. Amount Rs. 1.000 31. Amount Rs. 31 Gave acceptance for Rs. (ix) Jan. 18 Gave acceptance at two months for Rs.500 1. 25. 21.000 and he accepted the next day.500 Amount Rs.Shah bill for Rs.30. 14 Drew on R.Vakil’s acceptance for Rs.000 25. Rakesh’s Account Amount Rs.Ghosh his acceptance for Rs. 21 Particulars T li R b E u C p N re © e b to t S.32.31.F.
F.000 K. F.F.000 97. 23 Particulars Date 2006 Jan.000 30. h s Cr. 307 Cr. Amount Rs. Amount Rs.000 Date J. 20.000 Cr. Kanga’s Account Dr. 17 Particulars J.500 2. Date 2006 Jan.000 Bill Receivables Account Amount Rs. d e Amount Rs. 2006 Jan. 2006 Jan. 97. Date 2006 Jan. Particulars J. 20. 20 Particulars Sales Dr. Particulars J. 09 Particulars T li R b E u C p N re © e b to t J. 35. 30.000 20.000 Bills payable .500 Cr.F.500 2006 Jan.000 Date Particulars J. 22 Particulars J. 35. 31 Particulars Sundries Dr. Amount Rs. 2. 09 Purchases Amount Rs. Amount Rs.73. 2006 Jan. 27 Bill Receivable 35.73. Date 2006 Jan. F. 97. Dhiman’s Account Dr. 31 Balance c/d S. F.F.000 30. 23 Bills Receivable C.73. Warden’s Account Amount Rs.73. Amount Rs.500 2.000 Particulars J. 30.000 35.F.000 Cr. 2.F.000 20.000 97.000 Sales Bills Receivable Sales Dr. Amount Rs. Date J.Bill of Exchange D. Date 2006 Jan. F. o n Date 2006 Jan. Shah’s Account Date J.
500 Date J. 39. Amount Rs.000 39.99. d e Amount Rs.500 2006 Jan. 21.500 in cash including Rs. 2006 Sachin sold goods Rs. 13 Particulars Accountancy Cr. 31 Purchases Bill Payables Account Amount Rs.30. J. Date J. Date 2006 Jan. Particulars J.000 Date 2006 Jan. Particulars J. 500 interest and accept a new bill for two months for the remaining Rs. 1. Robert’s Account Amount Rs.99. 39.500 1. Parkar’s Account Dr. Date 2006 Jan.5000 .000 42. 2006 Jan. 15. Date 2006 Jan. 31 Particulars Bills payable Dr.250 on Jan. 1.000 42. F. in posting bill transactions from the two books to the accounts of debtors and creditors.500 J.F. 01 Particulars Balance c/d Note: The drawing and acceptance of a bill always pre-supposes some background of sale or purchase transaction.F. Amount Rs.29.000 Cr.500 21. 31. 2006.F. F.000. 21. F. on maturity the bill was dishonoured.500 21. h s 42.F. 04 Sundries Receivable 1. He further agreed to pay Rs. Date 2006 Jan. Therefore. 13 Particulars J.500 Cr. it is supposed that the necessary sales and purchases entries have been duly recorded. Amount Rs. The bill was discounted by Sachin from his bank for Rs. The bill was accepted by Narain.99.10. F.20. Date Particulars J.000 2006 Jan.308 Pradhan’s Account Dr.000 Bills payable Purchases S.000 39. Amount Rs.99. o n T li R b E u C p N re © e b to t 42. Cr. 18 Purchases A. Illustration 4 On Jan. Amount Rs.000 to Narain and drew upon the later a bill for the same amount payable after 3 months. 18 Particulars Bills payable Dr.
30.15 Bill’s Receivable A/c To Narain’s A/c (Received Bunty’s acceptance) Jan. To Bill Receivable A/c To Discount Received A/c (Narain’s acceptance endorsed in favour of kapil and he allowed discount) Books of Narain Journal o n Date T li R b E u C p N re © e b to t Dr. Debit Amount Rs. 30. 20.000 .000 20. 2006 Jan.000 500 30.000 30.500 Dr. Solution Books of Sachin Journal Date Particulars L.F.000 30.F.800. 30.500 20.000 30.000 800 Credit Amount Rs. Record the necessary journal entries in the books of Sachin and Narain. 15 Purchases A/c To Sachin A/c (Purchased goods from sachin) 30. 2006 Jan.250 750 Dr.19 Kapil A/c Dr. Discount A/c To Bill receivable A/c (Narains’ acceptance discounted with bank) Apr.800 Particulars L. 19 Narain’s A/c To Bank A/c To Interest A/c (Narain’s acceptance cancelled) Apr.000 29.19 Bank A/c Bills Receivavble A/c To Narain A/c (Received cash from Narain and a new acceptance for the balace) Apr.000 Credit Amount Rs. Debit Amount Rs. Dr.500 d e 20.Bill of Exchange 309 The new bill was endorsed by sachin in favour of his creditor Kapil for settling a debt of Rs. 30. The new bill was duly met by Narain on maturity. h s 30. Dr.000 Dr. 15 Narain A/c To Sales A/c (Sold goods to Narain) Jan. 10. 31 Bank A/c Dr.
8. 30 Bills Receivable A/c Dr. and four months respectively. 14. He endorsed the second bill in favour of his creditor Chetan.000 to Bishan on October 30. 20. First for Rs.000 30.a.000 payable after four months) T li R b E u C p N re © e b to t Dr.000 30.000 payable after two months.F. Apr. To Bishan’s A/c (Received three acceptances from Bishan.100.000 10.14. On March 03.22 Illustration 5. Accountancy 30. Ashok sold goods Rs. 2005 and drew three bills for Rs.000 .000 14. 30 Bishan’s A/c Dr.500 20.000 and noting charges in cash and accepted a new bill at two months after date for the balance plus interest Rs. 19 Apr.50 as noting charges.000.000 payable after two.000 Books of Ashok Journal Particulars L. three. 4. The first bill was kept by Ashok with him till maturity.4. 2006 Bishan paid Rs.500 30. 14. 8.4. The new bill was met on maturity by Bishan.2. Solution Date o n 2005 Oct.500 Bill Payable A/c Dr. The third bill was discounted on December 03. Interest A/c To Sachin A/c (Cancelled old bill & Sachin charged interest) Sachin’s A/c To Bank A/c To Bill Payable A/c (Paid Sachin and accepted a new draft for the balance) Bills Receivavble A/c To Bank A/c (Met new acceptance on Maturity) Dr.000 h s 20. second for Rs.15 Sachin A/c To Bills Payable A/c (Accepted Sachin’s draft) Jan. Rs. The first and second bills were duly met on maturity but the third bill was dishonoured and the bank paid Rs.310 Jan.000 d e Credit Amount Rs.000 & Rs. 2005 at 12% p.000 500 30.19 Dr. You are required to give the journal entries in the books of both Ashok ans Bishan and prepare Bishan’s account in Ashok’s books and Ashok’s account in Bishan’s books. Debit Amount Rs. 2.000 14.000 payable after three months and the third for Rs. To Sales A/c (sold goods to Bishan on credit) Oct.
050 4.000 8. 03 Bills Receivable A/c Dr. 03 Bishan’s A/c To Interest A/c (Interest charged from Bishan for the extended period) Mar.100 4. 03 Bills Receivable Cash Bills Receivable 22.000 Mar. 03 Mar.02 Bank A/c Dr. 03 Mar. 03 Bishan A/c Dr. 7.Bill of Exchange Oct. 03 Cash A/c To Bishan’s A/c (Cash received from Bishan) Dr.050 100 4. Bills receivable A/c (Bishan met his first acceptance on due date) Mar. 14.050 4. Amount Rs. 30 2006 Mar.000 8.050 100 2005 Oct. Particulars J. F.100 d e Cr.a.050 Dr.000 4.150 h s 2. To bills Receivable A/c (Bishan met his new acceptance on maturity) Bishan’s Account Date Dr.000 Dec.100 J.F. To Bishan’s A/c (Received new acceptance from Bishan for two months) May 06 Bank A/c Dr.150 . Date o n 2005 Oct.000 311 4. 03 Bank A/c Dr. 4. 100 4.) 2006 Jan.100 4. 09 Particulars Sales Bank Interest T li R b E u C p N re © e b to t 8. 30 2006 Mar.050 4. 14. 30 Chetan’s A/c To Bills receivable A/c (Endorsed second bills in favour of creditor Chetan) Dr. To Bank A/c (Bishan dishonoured his third acceptance and bank paid Rs.100 22.50 as noting charges) Mar. Amount Rs.760 240 8.000 2. Discount A/c To Bill receivable A/c (Third bill discounted at 12% p.
000 8.000 14.000 Credit Amount Rs. the first for Rs. 4. 30 Ashok’s A/c Dr. 2.100 h s 14.000 Dr.100 . 50) Mar.000 payable after 2 months. 4. 03 Interest A/c To Ashok’s A/c (Interest allowed to Ashok) o n May 03 Mar.050 4. 03 Ashok’s A/c Dr.050 Dr.000 in favour of Ashok. 2005 Oct. To Bills Payable A/c (New draft of Ashok for two months accepted) T li R b E u C p N re © e b to t 2. Accountancy Debit Amount Rs.050 d e 100 4. second for Rs. To Bills Payable A/c (Accepted three drafts of Ashok.000 Payable after 4 months) Dr.100 4. 30 Purchases A/c To Ashok’s A/c (Purchases goods on credit from Ashok) Dr.100 in favour of Ashok on maturity) 4.312 Books of Bishan Journal Date Particulars L.F.000 Payable after 3 months and the third for Rs. 2. To Cash A/c (Paid to Ashok Rs. 8. 02 Bills Payable A/c To Bank A/c (Met first acceptance for Rs.000 Oct.100 Bills Payable A/c Dr.000 plus noting charges) Mar. 14. 14. 03 Bill Payable A/c Noting charges A/c To Ashok A/c (Third acceptance in favour of Ashok dishonoured and noting charges Rs. Dr.000 2. 2006 Jan. To Bank A/c (Met new acceptance for Rs. 8.050 50 4.) Mar. 4. 03 Ashok’s A/c Dr. 100 4.
14. Aashirwad draws on Aakarshak a Bill of exchange for 3 months for Rs. Before maturity Aakarshak approaches Aashirwad with the request that the bill be renewed for a further period of 3 months at 18 per cent per annum interest. To Bills Receivable A/c (The bill of exchange received from Aakarshak.000 4.000 which Aakarshak accepts on January 01.000 Dr. 2006.F. To Aakarshak’s A/c (The Bill of exchange received from Aakarshak) Jan. Amount Rs. 04 Apr.000 Aakarshak’s A/c Dr. To Aakarati’s A/c (Cancellation of the bill of exchange received from Aakarshak now with Aakarati) Apr.a. assuming that the second bill is duly met. Amount Rs.150 Bills payable Cash Bills Payable Purchases Bills Payable Noting charges Interest Illustration 6.F. Solution Date 2006 Jan. 10. 14. Date 2005 Oct.10.01 Aakarati’s A/c Dr.000 10.10. 03 Mar. 10. F.000 50 100 22.050 4. endorsed to Aakarati) o n Apr.000 10.000 d e Credit Amount Rs. 04 Aakarshak’s A/c Dr. 10. 09 Particulars J. Debit Amount Rs. 01 Bills Receivable A/c Dr. Record journal entries in the books of Aashirwad.Bill of Exchange Ashok’s Account Dr. 09 Particulars J. 04 Aakarati’s A/c To Bank A/c (Payment of the amount due to Aakarati) T li R b E u C p N re © e b to t Book of Ashirwad Journal Particulars L. 30 2006 Mar.000 for 3 months at 18% p.150 Date 2005 Oct.100 22. To Interest A/c (Interest due from Aakarshak on Rs. Aashirwad pays the sum to Aakriti on the due date and agrees to the proposal of Aakarshak. 30 2006 Mar.000 8. 03 Mar. 313 Cr.000 10.000 450 h s 10.000 10. Aashirwad endorses the bill in favour of Aakarti.) 450 .
Nikita paid Rs.100 as interest. Apr. To Bank A/c (The promissory note dishonoured by Ankit the amount of the bill and the noting charges recoverable from Ankit and payable to bank) July 04 Cash A/c To Ankit’s A/c (The amount received from Ankit) T li R b E u C p N re © e b to t Books of Nikita Journal Particulars L.450 10.000 5.760 240 6. 10. To Interest A/c (Interest due from Ankit for the second bill) 100 .450 Ankit owes Nikita a sum of Rs.450 Dr.000 July 04 Ankit’s A/c Dr.5.000 100 h s 6. on the due date the bill is dishonoured.000 d e Credit Amount Rs. Dr.5. 6. Accountancy 10. Solution Date 2006 Apr.2. 01 Bills Receivable A/c To Ankit’s A/c (Ankit’s promissory note received in settlement of his account) Apr.314 Bills Receivable A/c To Aakarshak’s A/c (The new bill received from Aakarshak for the amountdue for him) July 07 Bank A/c To Bills Receivable A/c (The amount received from Aakarshak in respect of the renewed bill) Illustration 7.000 in cash and accepts a bill of exchange drawn on him for the balance together with Rs.6.015 2.760. This bill of exchange is for 2 months and on the due date the bill is again dishonoured.000. Debit Amount Rs. 6.450 10. On April 01. Draft the journal entries to be recorded in Nikita’s books. To Bills Receivable A/c (Ankit’s Promissory note discounted for Rs. the bank paid Rs.15 as noting charges.760) o n July 04 Ankit A/c Dr.000 6. 04 Dr. Ankit then pays Rs. 2006 Ankit gives a promissory note for the amount for 3 months to Nikita who gets it discounted with her bankers for Rs. 2.015 Dr. 01 Bank A/c Dr.15 as noting charges.F. Discount A/c Dr.
Dr.115 315 4. 6.010 120 .000 10 120 h s d e Credit Amount Rs. Mohit approaches Rohit again and asks for renewal of the bill for a further period of 3 months.07 Ankit’s A/c To Cash A/c (Payment of noting charges.04 o n Bills Payable A/c Dr.4. 4.115 15 15 On May 2005 Mohit sends his promissory note of Rs. 6000 for 3 months to Rohit. On the due date.000 at 2 months. Solution Date 2005 May 01 Rohit’s A/c To Bills Payable A/c (The amount of the promissory note sent to Rohit) Aug.115 Sept.000 6.07 Ankit’s A/c Dr.10 as noting charges. 4. the bank paying Rs. To Rohit’s A/c (The dishonour of the promissory note and Rs. recoverable from Ankit) Illustraion 8. Rohit agrees to accept Rs.130 for noting charges and interest) and another promissory note for Rs. Rohit agrees to the request.Bill of Exchange July 04 Bills Receivable A/c To Ankit’s A/c (Ankit’s acceptance for 2 monthsin settlement of amount due) Dr. Draft journal entries in the books of Mohit and Rohit. This last bill is paid on maturity. 04 Interest A/c Dr. 6.130 in cash (including Rs.2. provided Mohit pays Rs. On the due date the bill is dishonoured. Debit Amount Rs. Noting charges A/c Dr.10 being payable as noting charges to Rohit) Aug. Rohit’s A/c (Interest due to Rohit from part renewal of the promissory) T li R b E u C p N re © e b to t Books of Mohit Journal Particulars L.200 as interest in cash. To Bills Receivable A/c (The dishonour by Ankit of his acceptance) Sept.115 4. Rohit gets it discounted with his bankers at 18 percent per annum on May 04.F. 6.000 Dr.
316 Aug. 4.000 Particulars L.04 Rohit’s A/c Dr.000 6.07 4.130 Oct. 6.000 5. To Rohit’s A/c (The amount due as interest ot Rohit on the renewed bill) Rohit’s A/c Dr. Accountancy 6.200 4.000 d e Credit Amount Rs.000 200 Oct. To Bank A/c (The dishonour of the promissory not by Mohit Rs.000 6.000 2.000 4. To Cash A/c To Bills Payable A/c (The new acceptance and cash sent to Rohit) Bills Payable A/c Dr. To Bills Receivable A/c (The discounting of the promissory note by Mohit at 18% on Rs.04 Bank’s A/c Dr.07 2001 Jan. To Mohit’s A/c (Mohit’s promissory note received this day) May 04 o n Aug. Debit Amount Rs.000 4. Interest A/c (The amount agreed to be paid as interest by Mohit) T li R b E u C p N re © e b to t 4.09 Date 2005 May 01 Bills Receivable A/c Dr.730 270 6. 10 being charged by bank for noting charges) Mohit’s A/c Dr.F. 6. 6. To Bills Payable A/c To Cash A/c (Payment of Rs.010 120 .000 sent to Rohit to settle his account) Bill Payable A/c To Rohit’s A/c (Cancellation of the bill due today) Dr. Discount A/c Dr.000 120 h s 200 200 4. To Cash A/c (Payment made to meet the bill due this day) Book of Rohit Journal Oct.000 for 3 months) Mohit’s A/c Dr.04 Aug.07 Interest A/c Dr. 2.130 4.130 in cash and a new promissory note for Rs.
000 Oct.Bill of Exchange Aug.130 317 4.130 Dr. (vii) Bill of exchange in India languages is called _____________ (viii) __________days of grace are added in terms of the bill to calculate the date of its__________.000 200 d e .07 Dr.04 Cash A/c Bills Receivable A/c To Mohit’s A/c (Cash and promissory note received from Mohit for the amount due from him) Oct. get the money immediately by getting Ankit’s acceptance discounted with o n T li R b E u C p N re © e b to t Dr.III h s 4.12 Accommodation Bills Normally. 200 Oct.000 4. 200 4. bills of exchange or promissory notes are drawn to finance the actual transactions in goods.e. There are ____________________parties to a promissory note. 10 Cash/Bank A/c To Bills Receivable A/c (Mohit met his acceptance on maturity) (Cash and promissory not received from Mohit) Dr. Drawer and ______________can not be the same parties in case of a bill of exchange.07 Mohit’s A/c To Bills Receivable A/c (Cancellation of the bill due today) Mohit’s A/c To Interest A/c (The amount due from Mohit as interest) Cash A/c Bills Receivable A/c To Mohit’s A/c Dr.000 4.. There are ____________________parties to a bill of exchange. 2. A bill of exchange is drawn by the ________________upon his___________. Fill in the blanks: (i) (ii) (iii) (iv) (v) (vi) A bill of exchange is a ___________________________________instrument. Ankit buys goods from Bishan. he may postpone the payment by accepting a draft drawn by Bindu upon him. an acceptance is made to settle a trade debt owing to the drawer by the drawee in case of a bill of exchange and the bill is called a trade bill. As it originates from genuine trade transaction it is for value received and is enforceable.200 4. Dr.000 6. Bindu can if he wants. For example.000 Test Your Understanding . 8. A promissory note is drawn by ______________in favour of his__________. i.07 2006 Jan. 4.
F. 9.000 Credit Amount Rs. apart from financing transaction in goods. Debit Amount Rs. Dr.F.000 Dr. 2006 for three months and the latter accepts the same to accommodate Raj.000 Books of Pal Journal Particulars L. 03 Pal’s A/c To Bank A/c (Remittance to Pal for paying off accommodation bill) Date o n 2005 Apr. For example.10. 10.850 150 Dr. 01 Bills Receivable A/c To Pal’s A/c (Received Pal’s acceptance) Apr. Pal met the bill on the date of its maturity. the drawee is called the ‘accommodating party’ and the drawer is called the ‘accommodation party’. bills of exchange promissory notes may also be used for raising funds temporarily. The journal entries in the books of Raj and Pal will be recorded as follows: Date 2006 Apr. Raj discounts it with his bank at 6% per annum on the same date.000 on April 01. Such a bill is called an ‘accommodation bill’ as it is accepted by the drawee to accommodate the drawer.000 .000 10. To Bill Payable A/c (Acceptance of accommodation bill drawn by Raj) Jul.000 Dr. Debit Amount Rs. h s d e 10.000 10. Raj draws upon Pal a bill for Rs.01 Raj’s A/c Dr. 01 Bank A/c Discount A/c To Bills Receivables A/c (Discount Pal acceptance) Jul. Hence. 10. Raj remitted the amount one day before the maturity of the bill to Pal.03 Bill Payable A/c To Bank A/c (Discharge of accommodation) 10.03 Bank A/c To Raj’s A/c (Received Raj’s remittance) Dr.000 10. 10. But. 10. 10.318 Accountancy his bank.000 10. Dr.010 Credit Amount Rs. T li R b E u C p N re © e b to t Book of Raj Journal Particulars L.000 Jul.
9.500 h s d e 9. Dr.000 for 2 months.000 Credit Amount Rs. Journalise the transactions in the books of Ashu and Mudit. 8. Ashu got it discounted at 5% from Bank same day. 2005 Ashu drew upon a bill for Rs. But in the case (b) the discount is not shared as each party retains the entire proceeds of the bill drawn and discounted by him.000 4. 01 Bills Receivable A/c To Mudit’s A/c (Mutual accommodation bill receipts from Mudit) Bank A/c Discount A/c To Bill Receivable A/c (Bill discounted from bank) Oct.925 75 Dr. each party meets his acceptance out of his own resources if everyone draws and accepts bills of the same denomination and tenure. Illustaration 9 Ashu and Mudit were in need of funds. Books of Ashu Journal Date Particulars L. so that the latter could duly meet his acceptance.Bill of Exchange 319 Sometimes. 01 Oct. 4.500 . On the due date Ashu sent the required sum to Mudit.000 9. 4. Mudit accepted the bill and returned to Ashu. 01 Mudit’s A/c To Cash A/c To Discount A/c (Half the proceeds remitted to Mudit) T li R b E u C p N re © e b to t Dr. just before maturity. But where they share the proceeds of the same bill. the balance due to the drawee. Based upon the above discussion. Dr. 9. who met the bill.50 Mudit’s A/c To Cash A/c (Half amount of the bill sent to Mudit to enable him to meet it) 4.462. the accommodation parties agree to raise the funds through an accommodation bill for mutual benefits. Debit Amount Rs.F. 01 o n Oct. 2005 Oct.50 37. the drawer should remit. it can be stated that an accommodation bill helps both the parties to the instrument to temporarily raise the necessary funds from discounting institutions. It can be done in any of the following two ways: (a) The drawer and the drawee share the proceeds in an agreed ratio (b) Each draws a bill and each accepts a bill In the case (a) the discounting changes are shared by drawer and drewee in the ratio in which they share the proceeds. On maturity.500 Dr. Half of the amount were remitted to Mudit. On October 01.
462. 5.500 9. 3. Debit Amount Rs. 4. 5. 5. 01 Dec.F.500 9.000 4. Accountancy Debit Amount Rs.50 Oct. 01 Ashu’s A/c To Bills Payable A/c (Mutual Accommodation bill accepted) Cash A/c Discount A/c To Ashu’s A/c (half amount of Discounted Bill received from Ashu) Dr. 9. Dr. 4. 4.000 for 3 months and Rohit accepted Rohan draft for Rs. Dr. 05 Bill Payable A/c To Bank A/c (Acceptance honoured) Illustration 10 Dr. 2005 Oct.000 Credit Amount Rs. Before maturity of the bill Rohit sent Rs. Books of Rohan Journal Date o n 2005 Nov.000 to Rohan for difference in accommodation bill. Rohan accepted Rohit draft for Rs. 2005. 01 Bill Receivable A/c To Rohit’s A/c (Accommodated bill received) Nov.500 4. The both bills were discounted at the respected banks for Rs 4.320 Books of Mudit Journal Date Particulars L. 3.000 Dr. Records the transaction in the journal of Rohan and Rohit. 04 Cash A/c Dr.000 for 3 months.F.000 4.000 d e Credit Amount Rs. 1. To Auhu’s A/c (Amount retained by Ashu now received from him) Dec.50 37.850.850 150 h s 4.000 Dr.000 .800 and Rs. On November 01.000 Dr. 01 Rohit’s A/c To Bills Payable A/c (Rohan accepted bill accommodation) Nov. 9. Rohan and Rohit met his acceptance on the due date. 01 Bank A/c Discount A/c To Bill Receivable A/c (Bill discounted by bank) T li R b E u C p N re © e b to t 4. Dr.000 Particulars L. Rohan and Rohit were both in need to temporary accommodation.
5. 01 Rohan’s A/c To Bills Payable A/c (Rohit accepted bill accommodation) Nov. 04 Bill Payable A/c To Bank A/c (Bill met on due date) (a) Drawer o n 1. Credit Amount Rs.F. 01 Bill Receivable A/c To Rohan’s A/c (Accommodated bill received) Nov.000 L.000 1.000 h s 5. 4.800 200 Dr.000 Dr.000 Dr.000 Feb. 4.Bill of Exchange Feb. 1. 04 Bill Payable A/c To Bank A/c (Bill met on maturity) Books of Rohit Journal Date Particulars Dr.000 5. 01 Bank A/c Discount A/c To Bill Receivable A/c (Bill discounted by bank) Rohan’s A/c To cash A/c (Sent cash to Rohan) Feb.000 d e Bill of exchange as an Instrument : A bill of exchange is a device by which the purchaser or debtor in a credit transaction is not required to . 1. 5. 04 Cash A/c To Rohit’s A/c (Cash received for meet the bill) Dr. 2005 Nov. 4.000 321 1. (b) (c) (d) (e) (f) (g) (h) Drawee Payee Bill Receivable Bill Payable Drawing of a Bill Acceptance of a Bill Payment of a bill T li R b E u C p N re © e b to t Dr.000 Key Terms Introduced in the Chapter Summary with Reference to Learning Objectives Debit Amount Rs.000 4.000 5.000 Dr. 04 Feb. 4. Dr.
2. (a) A bill is prepared by the creditor and accepted by the debtor. (b) There are three parties to a bill. Meaning of bill of exchange and promissory note: A bill of exchange is an acknowledgement of debt given by one person to another. 13. 3. h s d e Write two points of distinction between bills of exchange and promissory note. 14. (c) A bill requires acceptance to acquire financial status. What is meant by maturity of a bill of exchange? 6. there are only two parties to a note. 12.322 Accountancy make immediate payment but satisfies the seller or creditor by accepting in writing the liability to pay the amount due from him. What is retirement of a bill of exchange? Give the meaning of rebate. What is meant by renewal of a bill of exchange? Give the performa of a Bills Receivable Book. 11. 8. What is meant by dishonour of a bill of exchange? Name the parties to a promissory note What is meant by acceptance of a bill of exchange? What is Noting of a bill of exchange. Give the performa of a Bill of Exchange. o n 1. Short Answers 1. the amount of the bill is payable either on demand or at a fixed period. 4. incorporating all the terms and conditions of payments. State the three parties involved in a bill of exchange. 3. it is signed by the creditor and accepted by the debtor. a note is prepared by the debtor. Long Answers A bill of exchange must contain “an unconditional promise to pay” Do you agree with a statement? . 4. Difference between a bill and a note. 9. A promissory note is an undertaking in writing given by the debtor to the creditor to pay the latter a certain sum of money in accordance with the conditions stated therein. 2. Features and advantages of a bill : A bill is a written unconditional order. 5. Give the performa of a Bills Payable Book. 10. a note in itself has financial status. 15. T li R b E u C p N re © e b to t Questions for Practice Name any two types of commonly used negotiable instruments. 7. State any four essential features of bill of exchange.
000 and immediately drew a promissory note in favour of Parvati payable after 3 months. 3. On the due date Manju met her acceptance. she handed over the bill to her lawyer. Since.Bill of Exchange 2. Parvati was unaware about the provision of the law regarding the date of maturity of the bill. The bill of exchange was payable after 40 days. Reddy accepted the bill and returned it to Rao. T li R b E u C p N re © e b to t On Jan 01. 2006 and drew upon her a bill of exchange payable after 2 months.000 to Manju on Jan 05.000 to Reddy. The bank duly presented the bill to John on the due date who met the bill. the Government of India declared holiday under the Negotiable Instrument Act 1881. o n 4. Five days before the maturity of the bill.5. Journalise the above transactions in the books Rao and prepare of Rao’s account in the books of Reddy. .15. On the date of maturity of the promissory note. 7. Prepare John’s account in the books of Jimmi and Jimmi account in the books of John.2006. On Feb 01. Briefly explain the benefits of maintaining a Bills Payable Book and state how is its posting is done in the ledger? 323 Numerical Questions 1. Shankar purchased goods from Parvati for Rs. who duly presented the bill and received the payment. Explain briefly the purpose and advantages of maintaining of a Bills Receivable Book. Vishal immediately discounted the bill with his bank@12% p.10. 3.a. 2006. 5. Manju accepted Vishal’s draft and handed over the same to Vishal after acceptance. Explain briefly the procedure of calculating the date of maturity of a bill of exchange? Give example. 2. He immediately made a payment of Rs. Journalise the above transactions in the books of Vishal and Manju.7. The amount of the bill was handed over by the lawyer to Parvati immediately. h s d e Vishal sold goods for Rs. 4.000 by cheque and for the balance accepted the bill of exchange drawn upon him by Jimmi. Briefly explain the effects of dishonour and noting of a bill of exchange. Distinguish between bill of exchange and promissory note. On Jan 01. Jimmi sent the same to his bank for collection. 2006 Rao sold goods Rs. 6.000 from Jimmi. Briefly explain the purpose and benefits of retiring a bill of exchange to the debtor and the creditor. The bank informed the same to Jimmi. On the due date Rao presented the bill to Reddy and received the payment. Half of the payment was made immediately and for the remaining half Rao drew a bill of exchange upon Reddy payable after 30 days. Recore the necessary Journal entries in the books of Parvati and Shankar. John purchased goods for Rs.8.
Darshan sold goods for Rs. 2006 Arun sold goods for Rs. The promissory note drawn on Dec.10. • When the bill was endorsed immediately by Darshan in favour of his creditor Suresh. Accountancy On Jan 15. Varun accepted the bill and returned the same to Darshan. • When the bill was retained by Darshan till the date of its maturity. 1. Date Amount (Rs. 31. two month.000 to Bhagwan and drew upon him three bills of exchanges of Rs. Record the necessary Journal entries in the books of Darshan and Varun in the following circumstances. as per the provisions of Negotiable Instrument Act which was met by Sunil.324 5. The first bill was retained by Kartar till its maturity. The promissory note drawn on 26. 50% of the payment was made immediately by Sunil on which Arun allowed a cash discount of 2%.900.2006 Bansal Traders sent the promissory note drawn on Dec.000 Dec. 2005 to their bank for collection. On 25.30.12. 2005 1.200 Dec. 8. 18. • When Darshan immediately discounted the bill @ 6% p.000 to Sunil. 2005 was endorsed by Bansal Traders in favour of their creditor Dream Soaps in full settlement of a purchase amounting to Rs. and three months respectively. 2006. All the bills were met by Bhagwan. the bill was sent by Darshan to his bank for collection. Since. 2005 was retained by Bansal Traders with them till the date of its maturity. For the balance Sunil drew a promissory note in favour of Arun payable after 20 days.000 to Varun on 8.30. • When three days before its maturity. Mohan traders. Journalise the above transactions in the books of Kartar and Bhagwan. 6. 40. The promissory note for the sale of Dec. 2005 1. who runs a retail shop made the following purchases from Bansal Traders. 2005 2.2006 and drew upon him a bill of exchange payable after two months.a.a.) Dec. Bansal Traders allow a trade discount of 10% on the list price of the goods purchased from them. with his bank. On Jan. the date of maturity of bill was a public holiday. 21.2005 was discounted by Bansal Traders from their bank at 12% p.000 each payable after one month.a. Also prepare ledger accounts in books of Kartar and Bhagwan. Kartar Sold goods for Rs. The second bill was endorsed by him in favour of his creditor Ratna and the third bill was discounted by him immediately @ 6% p.000 Dec.1. 26. 31. 2005 5. Arun presented the bill on a day. 01. 7.000 For all the purchases Mohan Traders drew promissory note in favour of Bansal Traders payable after 30 days. State the date on which the bill was presented by Arun for payment and Jounalise the above transactions in the books of Arun and Sunil. 21.1. On the due date the bill was met by Varun. o n T li R b E u C p N re © e b to t h s d e . 28.
000 to Devendra and drew upto the latter three bills of exchanges. Ravi sent the bill to his bank for collection. You are requested to record the necessary journal entries in the books to Ravi. 9. • When the bill was discounted by Ravinderan immediately with his bank @ 6% p. One month before the maturity of the bill Muskan approached Neha to accept the payment against the bill at a rebate @ 12% p. 11.000 payable after one month.5. Ravi discounted the first bill with his bank at 6% p.000 to Muskan and drew upon her a bill of exchange payable after two months. 2006 Raghu sold goods worth Rs.a. The second bill was for Rs.a. He endorsed the second bill to his creditor Mustaq for the full settlement of a debt of Rs.200.5.12. Five days before the maturity of the fourth bill. On Jan 15. All the four bills were dishounoured by Sudarshan on maturity. Journalise the above transaction in the books of Neha and Muskan. Sudershan. 01. Ravi sold goods for Rs. 35. On the due date Narayanan dishonoured his acceptance. The third bill was kept by Ravi with him till the date of maturity. The second bill was discounted by 325 o n T li R b E u C p N re © e b to t h s d e . 2006. 12.10. The first bill was for Rs.5.000 to Sudershan on Feb 13. for the terms of the bills.000 payable after three months and third bill for balance amount for 4 months.000 payable after 40 days.40.000 payable after one month. On Jan 01.20. Pass the necessary journal entries in the books of Ravinderan and Narayanan in following cases: • When the bill was retained by Ravinderan with him till the date of its maturity.10. The first bill was for Rs.Bill of Exchange All the promissory notes were met by Mohan Traders.200. Raghu endorsed the first bill in favour of his creditor Dewan in full settlement of a debt of Rs. Also prepare Sudershan’s account and Mustaq’s account in the books of Ravi.a. Neha agreed to the request of Muskan and Muskan retired the bill under the agreed rate of rebate.000 payable after three months and fourth bill was for the balance amount payable after 19 days.a. • When the bill was sent by Ravinderan to his bank for collection a few days before it maturity. 10. Record the necessary journal entries for the above transactions in the books of Bansal Traders and Mohan Traders and prepare Mohan Traders account in the books of Bansal Traders and Bansal Traders account in the books of Mohan Traders. He drew four bills of exchange upon Sudershan. the second bill was for Rs. the third bill was for Rs. Ravinderan drew upon Narayanan a bill of exchange for the same amount payable after 30 days. 2006. 2006 Neha sold goods for Rs.000 from Ravinderan on Feb.25. Sudershan accepted all the bills and returned the same to Ravi. Mustaq and bank for the above transaction. • When the bill was endorsed to his creditor Ganeshan.20. Sudershan settled Ravi’s claim in cash three days after the dishonour of each bill along with interest @ 12% p. Narayanan purchased goods for Rs.
The third bill was also dishonored by Devendra and the bank paid Rs. sent the same for collection to his bank. 2006 for Rs. Viaml purchased goods Rs. 2006 and accepted a bill of exchange drawn upon him by Kamal payable after two months.19. On the due date of the bill Gupta presented the bill to Verma which the latter dishonoured and Gupta paid Rs.17. Verma paid Rs. On the due date Abdulla presented the bill to Tahir which was dishonoured.500. T li R b E u C p N re © e b to t h s d e . Asha discounted the bill immediately with her bank.000 from Kamal on Jan 15. Abdula sold goods to Tahir on Jan 17. 02. Gupta for the full settlement of a debt of Rs. On Feb. Abdulla paid Rs. • The bill was immediately discounted by Kamal with his bank @ 6% p.000 noting charges.700 including interest and noting charges.326 Accountancy Raghu @ 6 % p. Verma purchased from Sharma goods for Rs. Rs.15. You are requested to record the necessary journal entries in the books of Raghu Devendra and Dewan and also prepare Devendra’s account in Raghu’s books and Raghu’s account in Devendra’s account.500 immediately and for the balance gave a promissory note to Sharma payable after 60 days.18. • The bill was endorsed by Kamal in favour of his creditor Sharad. 2006.000.40 as noting charges.2. Devendra dishonoured the bill on maturity and the bank paid Rs. 15.400. He drew a bill of exchange for the same amount on Tahir for 45 days. Sharma immediately endorsed the promissory note in favour of his creditor. On the date of the maturity the bill was duly presented for payment.1.a. 2006. Five days after the dishonour of the bill Devendra paid the entire amount due to Raghu along with interest Rs. 14. Four days before the maturity of the third bill Raghu. Also prepare Tahir’s account in the books of Abdulla and Abdulla’s account in the books of Tahir. Sharma settled his 13.a. Vimal dishonoured the bill.000 to Nisha on March 02. On the same date Gupta informed Sharma about the dishonour of the bill. Record the necessary journal entries in the books of Asha and Nisha.18. • The bill was retained by Kamal till the date of its maturity. On the due date Nisha dishonoured the bill and the bank paid Rs.30 as noting charges.000 for this purpose Devendra obtained a short term loan from his bank.200 as noting charges. Five days after the dishonour of his acceptance Tahir settled his debt by making a payment of Rs. 30 as noting charges.000 were paid by Nisha immediately and for the balance she accepted a bill of exchange drawn upon her by Asha payable after three months.25. Asha sold goods worth Rs.4. • Five days before its maturity the bill was sent by Kamal to his bank for collection. On the same date Tahir accepted the bill and returned it to Abdulla. and the third bill was retained by Raghu till the date of maturity. o n 16. Record the necessary journal entries in the books of Abdulla and Tahir. record the necessary journal entries in the books of Kamal and Vimal when.5.
45 as noting charges. therefore.000 and drew upon Methew a bill of exchange for the same amount payable after two months.3. The bill was accepted by Alka. 2005.2002 Gaurav sent the bill to his bank for collection. Record the necessary journal entries is the books of Sharma.100 as noting charges.2006 for Rs.15. On Feb.23. Sharma’s account in the books of Verma.2006 and accepted a bill of exchange drawn by Gaurav for the same amount. Alka paid Rs. The bill was dishonoured by Methew and Lilly paid Rs. T li R b E u C p N re © e b to t h s d e .500.1881. She further requested Rashmi to accept Rs.7. Methew settled the claim of Lilly five days after the disonour of the bill by a cheque.12.21. Akhil requested Nikhil to draw a new bill upon him with interest @10% p. He drew upon Akhil a bill of exchange for the same amount payable after 2 months. Verma settled Sharma’s claim by cheque for the same amount. And also Sharma’s account in the books of Gupta. Gupta and Verma for the above transaction and prepare Verma’s and Gupta’s accounts in the books of Sharma. 18.000 from Gaurav on 1. The bill was payable after one month. 2006 Rashmi sold good Rs. Record the necessary journal entries in the books of Rashmi and Alka and prepared Alka’s account in the books of Rashmi’s and Rashmi’s account in the books of Alka’s Nikhil sold goods for Rs. which he agreed. o n 20.2.a.2. 01. The bill was duly presented by the bank. Rashmi accepted Alka’s request and drew a new bill for the amount due payable after 2 months.a. Journalise the above transactions in the books of Lilly and Methew and prepare Mathew’s account in the books of Lilly and Lilly’s account in the books of Mathew. Record the necessary journal entries for the above transactions in the books of Kapil and Gourav. Lilly immediately discounted the bill with her bank at 9% p. A week before the maturity of the second bill Akhil 327 17. Lilly had to present the bill as per the provisions of the Indian Instruments Act. Kapil purchased goods for Rs. On the due date Akhil dishonoured the bill of exchange and the bank paid Rs. 19.Bill of Exchange debt to Gupta by cheque for Rs.000 to Akhil on Dec. On 25. Nikhil discounted the bill immediately with his bank @12 p.000 in cash and draw a new bill for the balance including interest Rs.2. Lilly sold goods to Methew on 1. The maturity date of the bill was a non business day (holiday). The new bill was duly met by Alka on maturity. 14.10.100 as noting charges. On Apr. whch includes interest @ 12% for the term of the bill. 2006 Alka approached Rashmi to cancel the bill since she was short of funds.a. The new bill was payable after two months. Kapil dishonoured the bill and the bank paid Rs.500 which includes noting charges and interest.500 to Alka.500 in cash and for the bank balance accepted a bill of exchange drawn upon her by Rashmi payable after two months. Akhil accepted the bill and sent it back to Nikhil.
21.000 Manju 6. Record the necessary journal entries in the books of Vibha. He further requested to accept Rs. Jan.000 Anju 5. 08 Chanderkala sent a promissory note for Rs. 22 . Vibha endorsed the bill immediately in favour of her creditor Geeta.500 Anita 14. Five days before the maturity of the bill Sudha requested Vibha to cancel the bill since she was short of funds.000 in cash immediately and drew a third bill upon him including interest of Rs. Babu accepted the bill and returned it on 5. Rs.2006.8. Debtors Creditors Rs. Sudha accepted Vibha’s draft and returned the same to Vibha after acceptance.000 o n T li R b E u C p N re © e b to t h s d e The following transactions took place in the month of Jan 2006: Jan 2 Drew on Babu at two months after date at full settlement for Rs.800.1. Babu 5. Jan. 22.2006.000 Chanderkala 8.900. 2006 Vibha sold goods worth Rs.000 Kiran 13.750. Nikhil agreed to Akhil’s request. Jan.1. Following was the position of debtor and creditor of Gautam as on 1. Vibha took the bill from Geeta by making the payment to her in cash and cancelled the same.500.000 Sheiba 12. Then she drew a new bill upon Sudha as agreed. 10 Promissory note received from Chanderkala discounted for Rs. record the necessary journal entries in the books of Nikhil and Akhil and also prepare Akhil’s account in the books of Nikhil and Nikhil’s account in the books of Akhil.000 to Sudha and drew upon the latter a bill of exchange for the same amount payable after two months. On Jan 01. 04 Babu’s bill discounted for Rs. Jan. Vibha accepted Sudha’s request. Akhil met the third bill on its maturity.328 Accountancy requested Nikhil to cancel the second bill.4.10.18. She further requested to draw a new bill upon her including interest of Rs. The new bill was duly met by Sudha on maturity.200. The new bill was payable after one month.4.7.000 payable three months after date. The third bill was payable after one month. 12 Accepted Sheiba draft for the amount due payable two months after date. Jan.
Sunny Give a fresh acceptance for the amount due to sonia plus interest of Rs. On Jan. On Jan. Tanu discounted the bill on same day @ 8% p. Give journal entry in the books of Bhanu and Naman. On due date. Jan. who met the bill. Ritesh and Naina were in need of funds temporarily. The proceeds are shared between sonia and sunny in proportion of 2/3rd. 12. On the due date sonia remits his proportion to sunny who fails to met the bill and as a result sonia has to meet it.Bill of Exchange Anita sent his promissory note payable after two months. Harsh duly honoured his acceptance. Half amount of the discounted bill remitted to Naina. Ritesh sent the required sum to Naina. 23 Anita’s promissory note endorsed in favour of Manju. Record the above transactions in the proper subsidiary books. 24. Record the necessary journal entries in the books of sonia and sunny. 01.000 for 4 months. 01. 01. 25 Accepted Anju’s draft payable after three months. Naina Accepted the bill and returned to Ritesh. Drawee (v) Two. Sunny accepts the bill and return it to sonia. (ii) Drawer. o n (i) (vi) Test your understanding-I False False (ii) (vii) Test Your Understanding-II (i)Promisee T li R b E u C p N re © e b to t False False (v) (x) (ii) Endorsement (iii) Promissor (iv) Endorser (iii) Debtor. Checklist to test Your Understanding True True (iii) (viii) False False (iv) (ix) 329 23. 29 Kiran sent Rs. Journalise the transaction in the books of both the parties. 2005 Sonia drawn a bill on sunny for Rs.2.a On the due date tanu sent a cheque to Harsh for honour the bill. 26. bhanu and Naman drew on each other a bill for Rs.a.a.000 payable 3 months after the due date for their Mutual benefit. Record the journal entries in the Books of Tanu and Harsh. Maturity (i) Negotiable. Jan. 15. 25. Ritesh discounted the Bill @ 8% p. On January 02 they discounted with their bank each other’s bill at 5% p. 1/3rd respectively. (vi) Drawee . Creditor (vii) Hundi h s d e True False Test Your Understanding-III (iv) Three (viii) 3. 2006 Harsh accepted a months bill for Rs. on the due date each met his Own’s acceptance.a. On Nov.000 for 3 months for mutual accommodation.000 in cash and a promissory note for the balance payable after three months. 10. 100 sunny meet his second acceptance on due date.000 drawn on him by tanu for latter’s benefit. 2006. Sonia discounted the same with his bankers @ 6% p. Jan. On August 01 2005 Ritesh drew upon Naina a bill for Rs. 8.
330 Accountancy o n T li R b E u C p N re © e b to t h s d e .