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Bill of Exchange Accounting

Today, we will cover very important topic of financial accounting. "Bill of


Exchange accounting" or"Accounting Treatment of Bill of Exchange" is relating to journal
entries of bill of exchange. We try to explain it with video tutorial and contents. First of all we
explain basic concepts of bill of exchange
What is bill of exchange?
Bill of exchange is written order letter in which there is not any condition. Writer's sign will be in it. In
this letter, order to other person is given to pay the certain sum of money to the writer of letter or to
pay any other authorized person or who has this bill of exchange.
Essential of a Bill of Exchange
1. It should be in written.
2. Unconditional order to pay.
3. Signed by writer.
4. Debtor must be a certain person.
5. Payment must be a certain amount.
6. Payment must be done on maturity of bill.
7. Acceptance must be given by debtor on this bill.
Parties of the Bill of Exchange
1. Drawer or Maker or Creditor
2. Drawee or Debtor or Acceptor
3. Payee or who have right to get payment
Maturity Date
Due date of bill is also called maturity date and we can get three day of grace period for paying debt
through bill.
Endorsement
If drawer signs on the back side of bill for giving the right to other for getting money from debtor, it
will be endorsement.
Dishonour of Bill of Exchange
If drawee or debtor does not pay the money of bill of exchange on maturity, then bill will be
dishonour. After this, debtor will be responsible to his unpaid dues.

Journal Entries in the books of Drawer


1. Drawer receives a bill accepted by drawee
Bill receivable account Dr.
To Drawee account
2. Drawee pays the bill on due date
Cash account Dr.
To B/R account
or
2. Drawee dishonours the bill on due date
Drawee account Dr.
To B/R account
3. If noting charges are paid by drawer
Drawer account Dr.
To Cash account
Journal Entries in the books of Drawee or Debtor
1. Drawer receives a bill accepted by drawee
Drawer account Dr.
To Bill payable account
2. Drawee pays the bill on due date
B/P Dr.
To cash account
or
2. Drawee dishonours the bill on due date

B/P account Dr.


To Drawer account
3. If noting charges are paid by drawer
Noting Charges account Dr.
To Drawer account