Professional Documents
Culture Documents
Class - 11 Accountancy
Chapter 8 - Bill Of Exchange
Definition
A bill of exchange is an instrument in writing, which consists of an unconditional
order duly signed by the maker of the bill directing to pay a specific sum of money
only to or to the order of a specific person or the bearer of the instrument.
1
Advantages of bills of exchange
● It is helpful for a person in the purchase and sale of goods on credit and also helps
in availing mko discounting facility.
● Legal evidence.
● Endorsement is possible in the bill of exchange.
● It provides relief from sending reminders.
● Helpful in planning cash operations.
● Convenient means of making foreign payments.
● Saving money in circulation.
● Convenience for the purchaser.
Promissory note
The purchaser of the goods or debtor by himself prepares a note, signs it and gives
it to the seller of the goods. It is known as a promissory note. A promissory note is
an instrument in writing, which consists of an unconditional undertaking duly signed
by the maker to pay a certain sum of money to, or to the order of, a certain person.
2
Features
1. It must be in writing and the amount to be paid must be specified.
2. It must be signed by the maker of the bill also known as the promisor.
3. The name of the payee must be mentioned in the note.
4. It must be duly stamped according to its value as per the Stamp Duty Act.
3
4. Payee The drawer of the bill A maker of a
can be the payee of the promissory note cannot
bill. be the payee of it.
● Negotiation of a bill
Negotiation means the transfer of a bill of exchange to another person in such a
manner that the transferee of the bill becomes its holder, who has the right to possess
the bill in his own name and to recover the amount mentioned therein from
concerned parties.
● Modes of negotiations
1. Negotiation by delivery.
2. Negotiation by endorsement and delivery.
● Endorsement of a bill
Endorsement means signing the bill of exchange to transfer it to another.
4
Y pays the No entry B/P a/c Dr. Bank a/c Dr.
amount of the
To bank a/c To B/R a/c
bill on the due
date ( The amount of ( The amount of
the bill paid on the bill received
due date) )
5
Retiring a bill under rebate
Retiring the bill is a case where the drawer makes the payment of a bill before its
due date.
Dishonour of a bill
In case when the acceptor of a bill refuses to pay the due amount of the bill on it's
maturity date or if he becomes insolvent, this is known as dishonour of the bill.
Renewal of bill
In case when the acceptor is unable to pay the bill amount on the due date. In that
case he/she may request the holder of the bill to cancel the original bill and draw a
new bill in replacement of the old one.
Accommodation Bill
Sometimes, to oblige a friend, a bill may be accepted without consideration. Such a
bill is known as an accommodation bill or kite or windmill.