Está en la página 1de 60

CBSE-i CBSE-i

Shiksha Kendra, 2, Community Centre, Preet Vihar, Delhi-110 092 India


Student's Material
ACCOUNTANCY
ACCOUNTING FOR BILLS OF EXCHANGE
CLASS
XI
UNIT-6
Shiksha Kendra, 2, Community Centre, Preet Vihar, Delhi-110 092 India
CBSE-i
CLASS
UNIT-6
IX
Student's Material
ACCOUNTANCY
ACCOUNTING FOR BILLS OF EXCHANGE
The CBSE-International is grateful for permission to reproduce
and/or translate copyright material used in this publication. The
acknowledgements have been included wherever appropriate and
sources from where the material may be taken are duly mentioned. In
case any thing has been missed out, the Board will be pleased to rectify
the error at the earliest possible opportunity.
All Rights of these documents are reserved. No part of this publication
may be reproduced, printed or transmitted in any form without the
prior permission of the CBSE-i. This material is meant for the use of
schools who are a part of the CBSE-International only.
Education plays the most important role in acquiring professional and social skills and a positive attitude to face
the challenges of life. Curriculum is a comprehensive plan of any educational programme. It is also one of the
means of bringing about qualitative improvement in an educational system. The Curriculum initiated by Central
Board of Secondary Education -International (CBSE-i) is a progressive step in making the educational content
responsive to global needs. It signifies the emergence of a fresh thought process in imparting a curriculum which
would restore the independence of the learner to pursue the learning process in harmony with the existing
personal, social and cultural ethos.
The CBSE introduced the CBSE-i curriculum as a pilot project in few schools situated outside India in 2010 in
classes I and IX and extended the programme to classes II, VI and X in the session 2011-12. It is going to be
introduced in classes III, VII and for Senior Secondary classes with class XI in the session 2012-13.
The Senior Secondary stage of education decides the course of life of any student. At this stage it becomes
extremely important for students to develop the right attitude, a willingness to learn and an understanding of the
world around them to be able to take right decisions for their future. The senior secondary curriculum is expected
to provide necessary base for the growth of knowledge and skills and thereby enhance a student's potential to face
the challenges of global competitiveness. The CBSE-i Senior Secondary Curriculum aims at developing desired
professional, managerial and communication skills as per the requirement of the world of work. CBSE-i is for the
current session offering curriculum in ten subjects i.e. Physics Chemistry, Biology, Accountancy, Business-
Studies, Economics, Geography, ICT, English, Mathematics I and Mathematics II. Mathematics at two levels
caters to the differing needs of students of pure sciences or commerce.
The Curriculum has been designed to nurture multiple intelligences like linguistic or verbal intelligence, logical-
mathematical intelligence, spatial intelligence, sports intelligence, musical intelligence, inter-personal
intelligence and intra-personal intelligence.
The Core skills are the most significant aspects of a learner's holistic growth and learning curve. The objective of
this part of the core of curriculum is to scaffold the learning experiences and to relate tacit knowledge with formal
knowledge. This involves trans-disciplinary linkages that would form the core of the learning process.
Perspectives, SEWA (Social Empowerment through Work and Action), Life Skills and Research would be the
constituents of this 'Core'.
The CBSE-i Curriculum evolves by building on learning experiences inside the classroom over a period of time.
The Board while addressing the issues of empowerment with the help of the schools' administering this system
strongly recommends that practicing teachers become skilful and lifelong learners and also transfer their learning
experiences to their peers through the interactive platforms provided by the Board.
The success of this curriculum depends upon its effective implementation and it is expected that the teachers will
make efforts to create better facilities, develop linkages with the world of work and foster conducive environment
as per recommendations made in the curriculum document.
I appreciate the effort of Dr.Sadhana Parashar, Director (Training), CBSE, Dr. Srijata Das, Education Officer, CBSE
and Ms. Anjali Chhabra, Assistant Education Officer, CBSE and their teams involved in the development of this
document.
The CBSE-i website enables all stakeholders to participate in this initiative through the discussion forums. Any
further suggestions on improving the portal are always welcome.
Vineet Joshi
Chairman, CBSE
Preface
Advisory Conceptual Framework
Ideators Classes XI and XII
Shri Vineet Joshi, Chairman, CBSE Shri G. Balasubramanian, Former Director (Acad), CBSE
Dr. Sadhana Parashar, Director (Training), CBSE Ms. Abha Adams, Consultant, Step-by-Step School, Noida
Dr. Sadhana Parashar, Director (Training), CBSE
Prof. A K Bakshi Ms. P Rajeshwari Dr. Niti Nandini Chatnani Ms. Neeta Rastogi
Dr. N K Sehgal Ms. Gyatri Khanna Dr. Anil K Bali Dr. Anshu
Prof. Kapil Kapor Mrs. Anita Makkar Dr. Preeti Tewai Dr. Rajesh Hassija
Ms. Renu Anand Prof. Biswajit Nag Dr. Deeksha Bajpai Ms. Mukesh Kumar
Dr. Barkatullah Khan Dr. Jacqueline Symss Mr. S K Agarwala Dr. Om Vikas
Ms. Avnita Bir Ms. Usha Sharma
English :
Chemistry :
Ms. Gayatri Khanna
Ms. Renu Anand
Ms. P Rajeshwary
Ms. Sandhya Awasthi
Ms. Manna Barua
Ms. Veena Bhasin
Ms. Urmil Guliani
Ms. Sudha Ravi
Mr. Anil Kumar
Ms. Vijaylaxmi Raman
Ms. Neerada Suresh
Ms. Himaal Handoo
Dr. G S Sodhi
Dr. Vimal Rarh
Dr. Shalini Baxi
Dr. Vinita Arora
Dr. Vandana Soni
Ms. Charu Maini
Ms. Rashmi Sharma
Ms. Kavita Kapoor
Biology :
Physics :
Mathematics :
Dr. Ranjana Saxena
Dr. Neeraja Sood
Dr. P Chitralekha
Ms. Mridula Arora
Ms. Lucy Jad
Ms. Priyanka Choudhury
Ms. Prerna Gosain
Ms. Malini Sridhar
Dr. B. Biswal
Ms. Namarata Alwadhi
Mr. Dhirender Sharma
Ms. Vandana Banga
Mr. Vivek
Dr. Sushil Kumar
Mrs. Monica Talwar
Mrs. Charu Dureja
Mrs. Seema Juneja
Dr. H K Bhatia
Dr. Sushma Bansal
Geography:
Economics:
Ms. K Jaya
Dr. Preeti Tewari
Ms. Rupa Das
Ms. S Fazal Daoud Firdausi
Ms. Neena Phogat
Ms. Sujata Sharma
Ms. Deepa Kapoor
Ms. Bharti Malhotra
Ms. Isha Kaushik
Mr. Riyaz Khan
Mr. S K Agarwala
Ms. Ambika Gulati
Ms. Nidhi Singh
Ms. Malti Modi
Ms. Sapna Das
Ms. Ingur Agarwal
Ms. Shankar Kulkarni
Accountancy :
Business Studies :
ICT :
Mr. S S Sehrawat
Dr. K Mohna
Dr. Balbir Singh
Ms. Bhupendra Kriplani
Ms. Shipra Vaidya
Mr. Sandeep Sethi
Dr. S K Bhatia
Ms. Meenu Ranjan Arora
Mrs. Shegorika
Mr. Sandeep Sethi
Ms. Usha Sharma
Ms. Komal Bhatia
Ms. Ravisha Aggarwal
Mr. Mukesh Kumar
Ms. Nancy Sehgal
Ms. Purvi Srivastava
Ms. Gurpreet Kaur
Material Production Groups: Classes XI-XII
Cheif - Coordinators: Dr. Srijata Das, E.O
Acknowledgements
Coordinators:
Ms. Sugandh Sharma, EO
Ms. Madhu Chanda, RO (Inn)
Shri R. P. Sharma,
Consultant (Science)
Dr Rashmi Sethi, EO
Shri Al Hilal Ahmed, AEO
Ms. Neelima Sharma,
Consultant (English)
Ms. S. Radha Mahalakshmi, EO
Ms. Anjali Chhabra, AEO
Ms. Reema Arora
Consultant (Chemistry)
Mr. Navin Maini, RO (Tech)
Shr. R. P. Singh, AEO
Mr. Sanjay Sachdeva, S O
Contents
Preface
Acknowledgment
1. Activity 1
2. Negotiable Instruments 7
3. Parties to a bill of exchange 8
4. Promissory Note 10
5. Parties to a Promissory Note 12
6. Distinction between a Bill of Exchange and a Promissory Note 12
7. Advantages of bill of exchange / promissory note 14
8. Due Date or Date of Maturity and Grace Days 16
9. Recording of Bill Transactions 24
10. Books of acceptor/promisor 26
1

Students Material

ACTIVITY
You are familiar with using cash and cheques as means of payment for purchased
goods and services available. The cheques which are accepted in place of cash, are
deposited in your bank account.
You are also familiar with goods being sold on credit, where the seller collects his
payment on a later date.

Visualize the times when banks were not there, trade was being conducted, maybe with
cash or any other means prevailing in that era. How were the credit transactions being
conducted?
Taking an example of market where you have
1. Manufacturers (seller) shoes
2

2. Traders (buyer)
The shoe manufacturer brings his load full of shoes for the market, goes from one
shop to the other selling, his deals materialize more in credit than in cash.

The traders may take a credit facility from him for a week or ten days, the traders signs
a small piece of paper given to them by the manufacturer wherein they accept that they
will pay after a week or as decided.
The manufacturer goes back home with the documents with him but he needs cash to
pay his expenses, he needs to buy raw material, pay his staff and even look after his
personal expenses.
What should he do?
You need to understand the need of the bill.
For that we take another example.
Laying stress on the fact that the market trades in credit, but there will be someone in
the link who needs to be paid cash.
Take a product example Bread,
3


The channels used in making and distribution of bread.
You get the bread from the retailer for cash or on credit.

The retailer buys the bread from the wholesaler for cash or on credit.
The wholesaler buys the bread from the manufacturer for cash or on credit.
The manufacturer buys the raw material from the suppliers for cash or on credit.
The suppliers buy wheat from the farmer in cash.
This means that the supplier of raw material buys in cash and sell in credit.
How much would the suppliers have to invest for these activities?
What could be the source of funds for him?
Think about the solution to this problem.
4

What if the manufacturer gives in writing that he would pay to the supplier in one
month?
The document is prepared by the manufacturer.
The manufacturer accepts the condition and signs it.

The documents may be
i) kept by the supplier for a month and presented for payment to the
manufacturer.
ii) given to the bank, who will collect the payment on behalf of the supplier.
iii) given to the bank who gives the money to the supplier on the same date.
The bank deducts a discounting charge, and collects the money from the
manufacturer on the due date.
5

iv) he can pass the bill to his creditor for payment.
Can you identify the following from the above.
The drawer.
The drawee.
The payee.
The endorsee.
Discounting charge.
Due date.
Debtor being converted into bill receivable.
The bills of exchange / promissory notes are negotiable instruments. In India
these are governed by the Negotiable Instrument Act 1881. Similarly in other countries
there may be related laws/acts which may be governing the transactions related to bills
of exchange and promissory notes.
Example
When goods were sold on credit, the seller would merely ask the buyer to sign on a
piece of paper.
The buyer would commit a time and on the due date the seller would come and collect
the payment and return the slip to the buyer, who would tear the slip.
The sellers could also send someone on his behalf for the same.
You may act as a debtor and ask a friend of your to be a creditor.
6

One may draw a bill. Other students may be asked to act as other parties to a bill and
record bill transactions in their respective books of accounts and construct themselves
the understanding of the bill transactions.
. Hundis are bills of exchange written in Indian language.


Business transactions can either be in cash or on credit. When goods are sold or bought
on credit involving large amounts the seller has to ensure the recovery of his debt and
needs security and evidence over the dealings. Here the bills of exchange solve the
problem of the seller.
Besides, this when the number of credit transactions with an individual buyer increase,
credit may be allowed and payment may be received after some time.
7

In such cases it is better that the transactions are put in writing so that there is no
possibility of any misunderstanding between the buyer and the seller, besides the
amount may be paid in time as agreed.
If such an instrument is in proper form, the buyer and seller are in sound positions in
relation to each other. These credit instruments can even be transferred from one person
to another. These instruments are known as

Negotiable Instruments.
Bill of Exchange definition and characteristics : A bill of exchange is an instrument in
writing, signed by the maker, containing an unconditional order, 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 for value received.

The following features of a bill of exchange can be made out of this definition:
8

1. A bill of exchange must be in writing.
2. It must be dated and stamped.
3. It must be signed by the maker.
4. It contains an order to make payment and the order is unconditional.
5. The payment to be made must be certain.
6. The date on which payment is to be made must be certain.
7. The amount of the bill is payable to a certain person, or to his order or to the bearer
of the instrument.
8. It must be stamped as per the requirement of the law of the country in which it is
drawn.
9. It must be accepted by the debtor or someone else on his behalf.
10. Bills of exchange are drawn for value received i.e. for the buyer having received
goods of the value mentioned in it.
Parties to a bill of exchange
There are three parties to a bill of exchange. These are :
1. Drawer: The person who draws on writes the bill is called drawer. He is the
maker of the bill. A seller/creditor who is entitled who is entitled to receive the
money from the buyer/debtor can draw the bill of exchange upon the later. The
drawer after writing the bill has to sign it as the maker of the bill.
2. Drawee : The person upon whom the bill is drawn is known as the drawee. He is
the debtor. He is the person who is ordered by the drawer to make the payment.
Payee:
9

The person who has the right to receive the amount of the bill is called the payee. The
payee may will be the drawer if he keeps the bill with him till the date of its maturity
and the bill has been made payable to the drawer. In such a situation the drawer and
payee is the same person.
The payee may be a third party in the following cases:
(a) When the bill is drawn payable to a person other then the drawer.
(b) When the bill has been discounted before the date of its maturity from the
bank, then bank will become the payee.
(c) When the bill is endorsed by the drawer in favour of his creditor then the
creditor will become the payee.
Specimen of a bill of exchange is given below:
James New Delhi
Rs. 50,000 March 01, 2012
Three months after date pay to me or my order, the sum of Rupee Fifty
Thousand Only, for value received.

Stamp
Accepted Signed
(Signed) 147, Ashok Road, New Delhi-110001
Noory [To Noory, 1 Gandhi Road, Ahmedabad
1.3.2012


1. Fill in the Blanks
1. A bill of exchange is an ______________ ____________ in writing given by
creditors to the debtors.

10

2. The maker of a bill of exchange is called the _____________.

3. The debtor on whom a bill of exchange is drawn is called the _______________.

4. The person, other than the original creditor, to whom the amount in the bill is
made payable is known as the ______________ of the bill.

2. Write True or False against each of the following statement:
(i) A bill of exchange is a conditional document.
________________
(ii) The person who pays the amount of a bill is known as the payee.
____________________
(iii) There are only two parties in case of bill of exchange.
______________________
(iv) Drawee of a bill of exchange becomes liable on the bill only after he has
accepted it.
___________________________
(v) A bill of exchange before acceptance is called draft.
__________________________
Promissory Note:



11

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 to a certain person or to his order for value received.
A promissory note is drawn by a debtor in favor of his creditor where in the debtor
promises to pay a certain sum of money, since it is a promise by the debtor, the
promissory note does not require any acceptance. In India, the Reserve Bank of India
Act prohibits the issue of promissory notes payable to the bearer.
Following, are the important features of a promissory note :
1. It is must be in writing.
2. It must be contain an unconditional undertaking to pay.
3. It is drawn by the debtor in favour of his creditor.
4. It must be signed by the maker (debtor).
5. The amount payable is always certain.
6. The amount is payable to a certain person or to his order.
7. Promissory notes are drawn for value received.
8. Promissory notes cannot be made payable to the bearer.
9. It must be dated.
10. It must be properly stamped.




12

Specimen of a Promissory Note
Rajani New Delhi
Rs. 60,000 01, December 2011
Three months after date I promise to pay Mr. Nortan or order a sum of rupees
sixty thousand only for value received.
Stamp Rajani
2, Golf Links,
New Delhi-110002
To Norton
15, Club Road,
Mumbai-12003


Parties to a Promissory Note:
There are two parties to a promissory note as described below:
1. Maker or Drawer : The person who makes or draws the promissory note is
called the maker or drawer. He is also called the promissory.
2. Drawee or Payee : The person in whose favour the promissory note is drawn
is called the drawee or the payee. He is also called the promise.
Generally the drawee is the payee unless, it is otherwise stated in the promissory notes.
In the specimen of the promissory note given above Rajani promised to pay Nortan Rs.
60,000 three months after date. Here Nortan is the payee.
If Nortan endorses the promissory note in favour of Rossy then Rossy will become the
payee and if Nortan discounts the promissory note from the bank then bank will
become the payee.
Distinction between a Bill of Exchange and a Promissory Note:
13

Both a bill of exchange and a promissory note are negotiable instruments. These are
negotiable instruments. These are instruments of credit and the accounting treatment of
both the instruments is the same. However, there are some basic differences between
these two instruments. These differences have been detailed below:
Basis Bills of Exchange Promissory Notes
Drawer It is drawn by the
creditor upon his debtor.
It is drawn by the debtor
in favour of his creditor.
Order/Promise It contains an
unconditional order to
pay.
It contain an
unconditional promise to
pay
Parties Generally there are three
parties to a bill of
exchange viz. drawer,
drawee and payee.
Generally there are two
parties to a promissory
note, the drawer, and the
payee.
Acceptance It requires acceptance by
the drawee or some one
else on his behalf,
It does not require any
acceptance.
Payee Drawer (creditor) and
payee can be the same
party.
Drawer (Debtor) cannot
be the payee.
Notice It case of dishonour due
notice of dishonour is to
be given by the holder to
the drawer.
No notice needs to be
given in case of its
dishonour.
Payable to bearer It can be payable to
bearer
It is not payable to bearer


14

JUST CHECKING OT OUT.
1. A promissory note is an ____________ _____________ in writing given by the
debtor to the creditor.
2. The ____________ of a bill and the _______________ of a promissory note are the
persons primarily liable on the bill and the note respectively
Advantages of bill of exchange / promissory notes


Bill of exchange as instrument of credit are in use in the business because of the
following advantages:
1. Helps in undertaking credit transactions - A bill of exchange is an
instrument that provides a basis for credit transactions between the
prospective buyer and the seller.
2. Clear terms and conditions The term and conditions regarding the amount,
the time of payment, the person to whom payment shall be made are all clear
in the case of a bill of exchange.
3. Suitable means of credit A bill of exchange enables the buyer to buy the
goods without making payment immediately. It also enables the seller to sell
it to the buyer on credit but to raise credit either by discounting the bill from
the bank or by endorsing it in favour of someone else.
4. Proof of transactions - A bill of exchange is a conclusive proof of the credit
transactions between the seller/creditor and the buyer/debtor. It works as a
legal evidence for a credit transactions.
15

5. Easy transferability A bill of exchange can be easily transferred by
endorsement and delivery. The holder of the bill of exchange can endorse the
bill of exchange in favour of for somebody else settlement of debt.
6. Helps in financial planning Since the date of payment is fixed in the case of
a bill of exchange the debtor knows when he has to make payment and does
necessary planning to arrange funds on the date of payment. Similarly, the
creditor also knows when he is going to get payment and can prepare plans
to utilize the same.
7. Facilities movement of capital Bills of exchange facilitate movement of
capital because of being instrument of credit.

Important Terms:
There are some important terms which are peculiar to bill of exchange transactions.
These terms are discussed below:
Term of the Bill It is the period after which the sum mentioned in bills is to be paid.
The term of the bill is agreed upon by the parties to the bill. In the specimen of both the
bill of exchange and promissory given above the term is three months.
16

For example a bill of exchange drawn by. Mathews upon Lilly for a sum of Rs. 10,000 on
01.04.2012; payable after 60 days. Here, the term of the bill is 60 days.
Due Date or Date of Maturity and Grace Days :
The date on which the amount of the bill becomes payable is called due date or date
of maturity. This is the date on which a bill of exchange or promissory note becomes
due for payment.
To calculate due date or date of maturity, three days called Grace Days are added to
the date of expiry of the period of the bill. Thus, if a bill dated March 02 is payable 30
days after date, it falls due on April 04, i.e., 33 days after March 02.
But if the bill is payable one month after date, the due date would be April 05.
In case the date of maturity is a public holiday, the instrument will become due on the
preceding business day. In this case if April 05, falls on a public holiday then April 04
will be the date of maturity.
Sometimes because of some unavoidable circumstances the government may declares
an emergent holiday then the date of maturity of the bill will be the next working day
immediately after the holiday.
Bills at Sight : In a bill of exchange, the expressions, at sight and on presentation
means that the bill of payable on demand. Bills payable on demand become due as soon
as the bill is presented for payment. In a bill at sight 3 days of graced are not added.
Bill after date : When a bill is payable at a fixed period, after date the period begins
from the date of drawing of the bill. Three days of grace are allowed in case of such
bills.
Discounting of bill : Discounting of bill means enchasing of the bills before the date of
its maturity. Sometimes the holder of a bill of exchange may require money before the
date of maturity, in such a situation he can discount the bill from the bank and can
obtain cash.
17

When a bill is discounted from the bank, then the bank deducts a certain amount of
discount form the value of the bill and pays and balance the person discounting the bill.
The discount is the amount of interest charged by the bank for encashing the bill before
the maturity of discount depends upon the rate of interest and the unexpired period of
the bill.
Endorsement of Bill : An endorsement is the process by which a bill is transferred from
one person to another. The holder of the bill may use the bill to settle his debt with
another person.
The endorsement is done by signing by the holder, on the face or back of the bill and
thereby transferring his right in favour of someone else.
The person who makes the endorsement is called the Endorser. The person to whom
the bill is transferred is known as the Endorsee.
Bill Sent for Collection : Sometimes, the holder of the bill may send the bill to its bank
for its due presentations to the acceptor on the date of its maturity. This is generally
done a few days before the maturity date of the bill.
On the date of maturity the bank presents the bill to the acceptor in case of a bill of
exchange or to the maker in the case of a promissory note. On collecting the amount of
the bill the bank credits the amount in the customers account.
ACT IT OUT
Business is done with a lot of trust, but the fact is that a party say a debtor may let
you down by not honoring his commitment.

18

Ask your friends to volunteer as drawer and payee for a role play and ask them to
create a dialogue for reasons of dishonoring a bill, the situation would become
interesting if an endorsee was also introduced who had to collect the money from the
drawee, but the drawee did not ask for payment by presenting the bill.
When the endorsee brings the bill back to the drawer, the drawer along with the
endorsee goes to the drawee for an explaination but the drawee says that the
endorsee did not come.
A similar situation can be created when the drawee refuses to pay and the drawer
goes to court. In the court the drawee pleads that he was willing to pay but the
drawer did not pay.

These two situations will help you to understand the NOTARY to your students, as a
notary will not come without a charge, ask the students to think who would pay for
the notary.
Dishonour of Bill : Dishonour of the bill means the failure of the acceptor of the bill to
make payment on the date of maturity of the bill on its due presentations.
It means when a bill of exchange is duly present to the acceptor and he fails to make
the payment of the amount, this act of non performance of the commitment by the
acceptor is called dishonour of the bill.
19

On the dishonour of the bill the original relationship between the drawer of the bill and
its acceptor is restored i.e. the drawer again becomes the creditor to the extent of the
amount of the bill and the acceptor becomes the debtor to the same extent.
Noting of bill : A bill of exchange should be duly presented for payment on the date of
its maturity. The drawee/acceptor of the bill is absolved of his liability in case the bill is
not duly presented.
The presentation of the bill means that the bill should be presented for payment on the
date of its maturity to the drawee/acceptor of the bill on a working day during business
(working) hours. To establish beyond doubt the fact that the bill was dishonoured,
despite to due presentation, it may be got noted by the Notary Public. The recording of
the fact of dishonour. On the bill by the Notary Public is called Noting. For this
service, provided by the Notary Public he charges some amount which is called.
Noting Charges.
Noting charges are paid to the Notary Public by the holder of the bill on the date of
default. Since the acceptor of the bill is liable for the dishonour, the noting charges paid
by the holder are reimbursed by the acceptor. The following facts about the dishonour
of the bill are generally noted by the Notary Public.
(i) Date, facts and reasons of dishonour by the acceptor.
(ii) In case the bill is not expressly dishonoured, the reasons why the Notary
treats it as dishonoured.
(iii) The amount of Noting Charges charged by him.
20


Catch up.
1. The posting from the Bill Receivable Book are done to the
debit/credit_____________ of the accounts of individual debtors from whom bills
have been received.
2. The posting from the Bills Payable book are done to the debit/credit___________
of the accounts of individual creditors to whom acceptances have been given.
3. credit


Thinking time again.
Would it be possible for a debtor to offer his payment before the due date?
______________________________________________________________________________
____________________________________________


21

What could your reasons be of retiring a bill before the due date.
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
Retiring of the Bill : When the acceptor of the bill meets the bill before the date of its
maturity, it is called retirement of the bill. This is done by mutual agreement between
the holder of the bill and its acceptor.
It happens when the drawee/acceptor of the bill has funds for meeting the bill and
requests for the same to its holder.
If the holder agrees to do so, the bill is said to have been retired. To encourage the
retirement of the bill, the holder of the bill may allow some discount to the
drawee/acceptor.
This discount is called the rebate.
The rebate is calculated at a certain rate of interest on the unexpired time between the
date of its retirement and the date of its maturity.

Think
What if the debtors requests the drawer to extend the time of the bill. Should there
be a charge for the extended time in the form of interest?
Renewal of the Bill It happens sometimes that the acceptor of a bill is unable to meet
his acceptance on the due date. Under such a circumstance rather then allow such a bill
22

to mature and then dishonour it on presentation, he may approach the drawer of the
bill before the date of its maturity and request him to cancel the original bill and draw a
new bill on him for an extended period.
The acceptor in this case, would, of course, have to pay interest for the extention of
time.
Thus, the cancellation of a bill, already in circulation and before the date of its maturity
in return of another bill is called. Renewal of the Bill.
Sometimes, the acceptor pays a part of the amount of the bill in cash and requests for
the new bill to be drawn on him for the balance plus interest.

CRISIS
What would happen if the debtor was declared insolvent?
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
What would happen if the bill was:
retained and dishonoured
______________________________________________________________________________
______________________________________________________________________________
23

endorsed and dishonoured?
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
discounted and dishonoured
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
Who would bear the noting charges
______________________________________________________________________________
______________________________________________________________________________
who would be the ultimate loser due to bad debts.
______________________________________________________________________________
______________________________________________________________________________
Insolvency of Acceptor : Insolvency of the acceptor is a situation when he becomes
bankrupt and fails to meet his liabilities. In such a situation he applies to the court to
declare him insolvent. On being declared insolvent his assets are sold and money
realized from this is paid to the creditors in order of their claims as per rules.
In case of the insolvency of the acceptor the bill accepted by him is considered as
dishonoured. When some amount is realized from his property it is debited to
cash/bank account and the unrealized amount is considered as bad debt for the holder
of the bill and deficiency for the acceptor.
Accounting Treatment of Bill transactions:
The creditor/drawee of a bill of exchange when receives the bills of exchange after its
due acceptance by the debtor/drawee for him the bill is called Bills Receivable. Similar
is the situations in the case of a promissory note. When after writing the promissory
note the maker sends it to the creditor it becomes a Bills Receivable for the creditor.
The same bill are called as Bills Payable for the acceptor in the case of a bills of
24

exchange and for the maker in case of a promissory note. Bills Receivables are assets
and Bills Payables are liabilities.

Recording of a bill transactions
Books of Drawer/Promissor
The bills receivable can be treated in any one of the following ways by its receiver:
1. He may retain it till the date of its maturity and
a. Presents it himself and collects the amounts.
b. Sends it to his bank for collection
2. He may discount from the bank.
3. He may endorse the bill before the date of its maturity.
The accounting treatment under all the above cases assuming that the bill was duly met
by the acceptor on the date of its maturity is given below:
25

(A) When the bills is retained by the receiver with him till the date of its maturity.
a. On receiving the bill
Bill Receivable A/c Dr.
Debtors A/c
b. On Maturity of the bill
On maturity of the bill the bill will be presented to the acceptor and the acceptor will
make the payment.
The following entry will be made.
(2) Cash/Bank A/c Dr.
Bills Receivable A/c
(B) When the bill is sent for collection to the bank and the bank collects the amount
on behalf of the holder.
1. On receiving the bill.
Bills Receivable A/c Dr.
Debtors A/c
2. Sending the bill to bank.
Bill sent for collection A/c Dr.
Bills Receivable A/c
3. On Receiving the amount by bank
Bank A/c Dr.
Bills sent for collection
(C) When the bill is discounted from the bank the following entries will be made :
(1) On receiving the bill
Bills Receivable A/c Dr.
Debtors A/c
(2) On discounting the bill
Bank A/c Dr.
Discount A/c Dr.
Bills Receivable A/c
26

Note : No entry will be passed on the date of maturity because now the bill has become
the property of the bank and the bank will present it to the acceptor and collect the
amount.
(D) When the bill is endorsed in favour of the creditor.
(1) On receiving of the bill.
Bills Receivable A/c Dr.
Debtors A/c
(2) On endorsing the bill in favour of Creditor
Creditors A/c Dr.
Bills Receivable A/c
Note : No entry will be made on the maturity of the bill because now the bill is the
property of the creditor. The creditor will present it on the date of maturity and collect
the amount.
Books of the Acceptor/Promissor
The following journal entries will be passed in the books of the acceptor under all the
four circumstances. It makes no difference for the acceptor whether the bill is retained,
sent for collections, discounted or endorsed.
(1) On accepting the Bill :
Creditors A/c Dr.
Bills Payable A/c
(2) On meeting the bill on its date of maturity.
Bills Payable A/c Dr.
Bank A/c

27

BREAK TIME.
4. A bill of exchange is called a ___________ ____________ by one who is entitled to
received the amount due on it.
5. A bill of exchange is called a ____________ ____________ by one who is liable to
pay it on the due date.
6. The drawer of a bill can ___
__________ it in his possession, or
__________ it to the bank for collection, or
__________ it to a third party.
7. The drawer/payee of a bill can get the amount of the same before its due date by
getting the same ____________ .
8. When a bill is endorsed by the drawer, he is called an _____________.
9. A person to whom the drawer endorses a bill is known as an ______________.
10. When a bill is not paid on its due date, it is said to be ________________.
11. When a bill is dishonored, it is customary to get it _____________ by a
____________.
12. the fee charged for getting the bill noted after dishonour is called _____________
___________.
13. the renewal of a bill before dishonour implies that the _____________
_____________ must be first cancelled.
14. When a bill is sought to be paid before its date of maturity, the holder allows
_______________ to the acceptor.
Illustrations 1. On Jan. 01, 2012 X sold goods of Rs. 50,000 to Y on credit. X drew a bill of
exchange upon Y payable after three months. Y accepted the bill and returned it to X.
On the date of maturity Y met his acceptance. Pass necessary journal entries in the book
of X and Y under the following circumstances.
28

(i) X retained the bill with him till the date of its maturity and collected the amount
directly.
(ii) X sent the bill for collection on April 01, 2012 and the bank collected the amount.
(iii) X discounted the bill at 12% p.a. from his bank on the same day.
(iv) X endorsed the bill on the same date in favour of his creditor Z.
Books of X
(1) When the bill is retained by X
Journal
Date Particulars L.F. Debit
Amount
Rs.
Credit
Amount
Rs.
2012
Jan. 1
Ys A/c Dr.
Sales A/c
(Sold goods to Y on credit)
50,000
50,000
Jan. 1 Bills Receivable A/c Dr.
Ys A/c
(Received Ys acceptance for
three months)
50,000
50,000
April04 Bank A/c Dr.
Bills Receivable
(Y met his acceptance on
maturity)
50,000
50,000






29

(ii) When the bill was sent for collections to the bank.
Journal
Date Particulars L.F. Debit
Amount
Rs.
Credit
Amount
Rs.
2012
Jan. 1
Ys A/c Dr.
Sales A/c
(Sold goods to Y on credit)
50,000
50,000
Jan. 1 Bills Receivable A/c Dr.
Ys A/c
(Received Ys acceptance for
three months)
50,000
50,000
April04 Bill sent for collections A/c
Dr.
Bills Receivable A/c
(Ys acceptance sent to bank for
collection)
50,000
50,000
April05 Bank A/c Dr.
Bills Sent for Collections
(Ys acceptance collection by
bank)
50,000
50,000








30

(iii) When the bill is discounted from the bank.
Journal
Date Particulars L.F. Debit
Amount
Rs.
Credit
Amount
Rs.
2012
Jan. 1
Ys A/c Dr.
Sales A/c
(Sold goods to Y on credit)
50,000
50,000
Jan. 1 Bills Receivable A/c Dr.
Ys A/c
(Received Ys acceptance for
three months)
50,000
50,000
Jan. 1 Bank A/c Dr.
Discount A/c Dr.
Bills Receivable A/c
(Ys acceptance discounted with
bank)
48,500
1,500


50,000

(iv) When the bill is endorsed in favour of Z.
Journal
Date Particulars L.F. Debit
Amount
Rs.
Credit
Amount
Rs.
2012
Jan. 1
Ys A/c Dr.
Sales A/c
(Sold goods to Y on credit)
50,000
50,000
Jan. 1 Bills Receivable A/c Dr.
Ys A/c
50,000
50,000
31

(Received Ys acceptance for
three months)
April05 Zs A/c Dr.
Bills Receivable A/c
(Ys acceptance in our favour
endorsed in favour of Z)
50,000
50,000

Books of Z Journal
Date Particulars L.F. Debit
Amount
Rs.
Credit
Amount
Rs.
2012
Jan. 1
Purchases A/c Dr.
Xs A/c
(Purchased good on credit from
X)
50,000
50,000
Jan. 1 Xs A/c Dr.
Bills Payable Ac
(Accepted Xs draft payable after
three months)
50,000
50,000
April04 Bills Payable A/c Dr.
Bank
(Met on acceptance in favour of
X on maturity)
50,000
50,000

Accounting treatment on dishonour of a bill:
In the event of dishonour of a bill of exchange the parties to a bill of exchange return to
the same position in which they were before its acceptance, sending to bank the
collection, discounting it from bank or endorsing it & in favour of a creditor. The
32

following journal entries will be made in the books of different parties on the dishonour
of the bill.
(A) Book of Drawer/Promissor
(i) When the bill is retained by the drawer with him till maturity.
Debtors A/c Dr.
Bills Receivable
(B) When the bill was sent for collection to the bank
Debtors A/c Dr.
Bill sent for collection
(C) When the bill was discounted from the bank
Debtors A/c Dr.
Bank Ac
(D) When the bill was endorsed in favour of Creditor
Debtors A/c Dr.
Creditors A/c
Illustrations : Let us take the example of illustrations 01 and suppose that on the date of
maturity the bill was dishonoured by Y. The following journal entries will be made in
the books of X under all the four situations:
(i) When the bill was retained by X till the date of maturity
Journal of X
Date Particulars L.F. Debit
Amount
Rs.
Credit
Amount
Rs.
2012
Jan. 1
Ys A/c Dr.
Bills Receivable A/c
(Y dishonoured his acceptance on
maturity)
50,000
50,000


33

(ii) When the bill was sent by X to his bank for collections.
Journal of X
Date Particulars L.F. Debit
Amount
Rs.
Credit
Amount
Rs.
2012
April
04
Ys A/c Dr.
Bills sent for collections A/c
(Ys acceptance sent for collection to
bank dishonoured)
50,000
50,000

(iii) When the bill was discounted from bank.
Journal of X
Date Particulars L.F. Debit
Amount
Rs.
Credit
Amount
Rs.
2012
April
04
Ys A/c Dr.
Bank A/c
(Ys acceptance discounted from
bank dishonoured)
50,000
50,000

(iv) When the bill was endorsed by X in favour of Z
Date Particulars L.F. Debit
Amount
Rs.
Credit
Amount
Rs.
2012
Jan. 1
Ys A/c Dr.
Zs A/c
(Y acceptance in our favour
endorsed in favour of Z,
dishonoured)
50,000
50,000

34

Books of acceptor

Whatever might had happened to the bill before the date of maturity i.e. whether it was
retained by the drawer or sent to bank for collections, or discounted from bank or
endorsed by him in favour of his creditor on the date of dishonour the acceptor again
becomes the debtor of the drawer equal to the amount of the bill. The following journal
entry will be made in all such cases.
Bills Payable A/c Dr.
Drawers A/c
Journal of Y
Date Particulars L.F. Debit
Amount
Rs.
Credit
Amount
Rs.
2012
April
04
Bills Payable A/c Dr.
Xs A/c
(Our acceptance in favour of X
dishonoured)
50,000
50,000

Accounting treatment of Noting Charges:
As discussed earlier in the event of dishonour of a bill of exchange the holder may get
the Noting done on the bill by a Notary Public. For his servicesd the Notary Public
takes some charges and such charges are termed as Noting Charges. Noting Charges
are recoverable by the holder from the acceptor. The following journal entries will be
pass in the books of the drawer under the four different situations for Noting Charges.
(A) When the bill is retained by the drawer with him till the date of its maturity
and he pays Noting Charges
Drawers A/c / Acceptors A/c Dr.
35

Bank A/c
(B) When the bill was sent for collection to the bank
Drawees / Acceptors A/c Dr.
Bank A/c
(C) When the bill was discounted by the bank from the bank
Drawees / Acceptors A/c Dr.
Bank A/c
(D) When the bill was endorsed by the bank drawer in favour of his creditor.
Drawees / Acceptors A/c Dr.
Bank A/c
Illustrations 3 : Let us suppose that in case of illustrations I the bill was dishonoured.
On the date of maturity and Rs. 100 noting charges were paid by the holder of the bill.
The following journal entries will be made in four situations.
(i) When bill was retained by X with him and he paid Rs. 100 Noting Charges.
Journal of X
Date Particulars L.F. Debit
Amount
Rs.
Credit
Amount
Rs.
2012
April 04
Ys A/c Dr.
Bills Receivable
Cash
(Ys acceptance in our favour
dishonoured & paid noting
charges)
50,100
50,000
100




36

(ii) When the bill was sent for collection and bank paid Rs. 100 as noting charges.
Journal of X
Date Particulars L.F. Debit
Amount
Rs.
Credit
Amount
Rs.
2012
April 04
Ys A/c Dr.
Bills sent for collection
Bank
(Ys acceptance sent for collection
dishonoured and bank paid noting
charges)
50,100
50,000
100

(iii) When the bill was discounted by X from bank and bank paid noting charges.
Journal of X
Date Particulars L.F. Debit
Amount
Rs.
Credit
Amount
Rs.
2012
April 04
Ys A/c Dr.
Bank
(Ys acceptance in our favour
discounted from bank
dishonoured & bank paid noting
charges)
50,000
50,000






37

(iv) When the bill was endorsed in favour of Z and Z paid Rs. 100 noting charges
Journal of X
Date Particulars L.F. Debit
Amount
Rs.
Credit
Amount
Rs.
2012
April 04
Ys A/c Dr.
Z/s A/c on acceptance
favour of endorsed in favour of Z
dishonored & Z paid noting
charges)
50,100
50,100

Books of acceptor/promisor
Noting Charges have to be born by the acceptor to the bill it is because of the fact that
these charges are paid because of the failure of the acceptor to meet the bill on the date
of its maturity. Therefore, the acceptor opens Noting Charges Account in his books for
recording these charges. Following journal entry will be padded by the acceptor
whatever the Noting Charges are paid by any of the parties of the bill.
Noting Charges A/c Dr.
Drawers A/c
In the case of the above illustrations the following journal entry will be made in the
books of Y when the bill was dishonoured by him and Noting Charges Rs. 100 were
paid either by X, by bank or by Z.
Journal of Y
Date Particulars L.F. Debit
Amount
Rs.
Credit
Amount
Rs.
2012
April 04
Bills Payable A/c Dr.
Noting Charges A/c Dr.
50,000
100


38

Xs A/c
(Our acceptance in favour of X
dishonored & noting charges were
paid by holder)
50,100

Retirement of the bill : As discussed earlier retirement of the bill means discharging
the liability on the bill by its acceptor before the maturity of the bill. In such a situations
the acceptor gets some discount which is called as rebate. This rebate is an expense for
the holder of the bill who gets the amount of the bill before its maturity and it is an
income for two acceptor because by pays less amount for the bill. The following journal
entry are made in the book of the holder and the acceptor.
Books of Drawer/Holder
Bank A/c Dr.
Rebate A/c Dr.
Bills Receivable A/c
Books of Acceptor
Bills Payable A/c Dr.
Bank
Rebate
Illustrations : In case of illustration I let us suppose that Y agreed to retire the bill on
15.3.2012 at a rebate of Rs. 500.
Pass the necessary journal entries in the books of X and Y when the bill was retained by
X with him till the date of its maturity.






39

Solution
Journal of X
Date Particulars L.F. Debit
Amount
Rs.
Credit
Amount
Rs.
2012
Jan. 1
Ys A/c Dr.
Sales A/c
(Sold goods to Y on credit)
50,000
50,000
Jan. 1 Bills Receivable A/c Dr.
Ys A/c
(Y accepted on draft)
50,000
50,000
March
15
Bank A/c Dr.
Rebate A/c Dr.
Bills Receivable A/c
(Y retired his acceptance and the
paid rebate)
49,500
500


50,000
April05 Bank A/c Dr.
Bills Sent for Collection
(Ys acceptance collection by
bank)
50,000
50,000









40

Journal of Y
Date Particulars L.F. Debit
Amount
Rs.
Credit
Amount
Rs.
2012
Jan. 1
Purchase A/c Dr.
Xs A/c
(Purchased goods on credit
from X)
50,000
50,000
Jan. 1 Xs A/c Dr.
Bills Payable
(Accepted Xs draft)
50,000
50,000
March
15
Bills Payable A/c Dr.
Bank A/c
Rebate A/
(Retired our acceptance in
favour of X before maturity and
received rebate)
50,000
49,500
500

Renewal of Bill : Renewal of the bill involves the cancellation of the old bill and
drawing of a new bill as per the agreement between the drawer/holder of the bill and
the acceptor. Since it involves an element of interest the recording of interest is also
done in the books of both the holder and the acceptor. The following steps are taken
when a bill is renewed.
(i) Firstly, the old bill is cancelled and the entries for cancellations are recorded
in the books of both the parties.
(ii) Secondly, the entry for interest if any are recorded.
(iii) Thirdly the recording of cash if any part payment of the amount of the bill is
received/paid (including interest if any) is recorded.
(iv) Lastly, the recording for the new bill is done.
41

Journal entries in the books of drawer/holder of the bill
(1) For cancellation of the old bill
Acceptors A/c Dr.
Bills Receivable A/c
(2) For recording of interest
Acceptors A/c Dr.
Interest A/c
(3) For receiving part payment if any
Bank A/c Dr.
Acceptors A/c
(4) For receiving the new bill
Bills Receivable A/c Dr.
Acceptors A/c
Illustrations : On 5
th
January 2012 Charls sold good sRs. 30,000 on credit to Ahdmad.
Ahemad agreed to pay Rs. 10,000 in cash on 15
th
January and accepted a bill for the
remaining amount immediately payable after two months. On 20
th
March 2012 Ahemad
neglected Charles to cancel the old bill. He agreed to pay Rs. 5,000 on 20
th
March 2012
and accept a new bill for the balance including interest Rs. 600. The new bill shall be
payable after three months. Ahemad met the due bill on maturity.
Pass necessary journal entries in the books of Charles and Ahmead for the above
transactions.








42

Solution:
Books of Charles
Journal
Date Particulars L.F. Debit
Amount
Rs.
Credit
Amount
Rs.
2012
Jan. 05
Ahemads A/c Dr.
Sales A/c
(Sold goods on credit to Ahemad)
30,000
30,000
Jan. 05 Bills Receivable A/c Dr.
Ahemads A/c
(Received Ahemad acceptance)
20,000
20,000
Jan. 15 Bank A/c Dr.
Ahemads A/c
(Received from Ahemad on
account)
10,000
10,000
March 20 Ahemads A/c Dr.
Bills Receivable A/c
(Cancelled Old Bill)
20,000
20,000
March 20 Ahemads A/c Dr.
Interest
(Entered Charged on Renewal)
600
600
March 20 Bank A/c Dr.
Ahemads A/c
(Received Part Payment)
5,000
5,000
March 20 Bills Receivable A/c Dr.
Ahemads A/c
(Received New Bill from Ahemad)
15,600
15,600
43

July 23 Bank A/c Dr.
Bills Receivable A/c
(Ahemad Met his new acceptance
on Maturity)
15,600
15,600

Books of Ahemad
Journal
Date Particulars L.F. Debit
Amount
Rs.
Credit
Amount
Rs.
2012
Jan.05
Purchases A/c Dr.
Charles A/c
(Purchases goods on credit from
Charles)
30,000
30,000
Jan. 05 Charles A/c Dr.
Bills Payable A/c
(Accepted Charls draft)
20,000
20,000
Jan. 15 Charls A/c Dr.
Bank
(Paid to Charles on Account)
10,000
10,000
March 20 Bills Payable A/c Dr.
Charles A/c
(Charles cancelled the old bill on
our request)
20,000
20,000
March 20 Interest A/c Dr.
Charles A/c
(Interest Allowed to Charles)
600
600
March 20 Charles A/c Dr. 5,000
44

Bank
(Made part payment to Charles)
5,000
March 20 Charles A/c Dr.
Bills Payable A/c
(Accepted new bill in favour of
Charles)
15,600
15,600
July 23 Bills Payable A/c Dr.
Bank
(Met our new acceptance on
maturity)
15,600
15,600

Insolvency of Acceptor : The accounting treatment of insolvency of the acceptor
involves the cancellation of the bill which the insolvent accept failed to meet. Whatever
amount is received from the estate to the insolvent acceptor that is debited to bank
account and the unrecovered amount is debited to bad debts accounts, whereas in the
books of acceptor the unrecovered amount is recorded as Deficiency. The following
journal entries are made.
Books of Drawer
(1) For cancellation / dishonour of the bill
Acceptors A/c Dr.
Bills Receivable
(2) For receiving the payment from the estate of the insolvent acceptor
Bank A/c Dr.
Bad Debts A/c Dr.
Acceptors A/c
Books of Acceptor
(1) For cancellation of the bill on insolvence
Bills Payable A/c Dr.
Drawers A/c
45

(2) For making payment on realization of assets of the insolvent accept
Drawers A/c Dr.
Bank A/c
Deficiency A/c
Illustrations : On 1
st
January 2012. A sold on credit goods Rs. 80,000 to B and drew a bill
of exchange upon him for the same amount payable after three months. On the maturity
of the bill B dishonored the bill and A paid Rs. 500 at nothing charges. B requested A to
A draw a new bill upon him payable after two months. He agreed to pay the noting
charges and interest of Rs. 1,000 in cash. A agreed to this and drew a new bill upon B.
On the date of maturity of the new bill B became insolvent and an amount of 50% was
received from has estate.
Pass necessary journal entries for the above transactions in the books of A and B.
Solutions:
Books of A
Journal
Date Particulars L.F. Debit
Amount
Rs.
Credit
Amount
Rs.
2012
Jan. 01
Bs A/c Dr.
Sales A/c
(Sold goods on credit to B)
80,000
80,000
Jan. 01 Bills Receivable A/c Dr.
Bs A/c
(Received Bs Acceptance)
80,000
80,000
April 3 Bs A/c Dr.
Bills Receivable A/c
Cash
(B dishonoured his acceptance and
80,500
80,000
500
46

he paid noting charges)
April
03
Bs A/c Dr.
Interest A/c
(Interest Charged from B)
1,000
1,000
April
03
Bank A/c Dr.
Bs A/c
(Received interest and nothing
charges from B)
1,500
1,500
April
03
Bills Receivable A/c Dr.
Bs A/c
(Received a new bill from B)
80,000
80,000
Jan. 06 Bs A/c Dr.
Bills Receivable A/c
(Cancelled Bs new acceptor his
becoming insolvent)
80,000 80,000
Jan. 06 Bank A/c Dr.
Bad Debts A/c Dr.
Bs A/c
(Received final payment from Bs
estated and recorded the
unrecoverable amount as bad debts)
40,000
40,000


80,000

Books of B
Journal
Date Particulars L.F. Debit
Amount
Rs.
Credit
Amount
Rs.
2012 Purchases A/c Dr. 80,000
47

Jan. 01 As A/c
(Purchased goods on credit from A)
80,000
Jan. 01 As A/c Dr.
Bills Payable A/c
(Accepted As draft)
80,000
80,000
April
03
Bills Payable A/c Dr.
Noting Charges A/c Dr.
As A/c
(Dishonour of our acceptance and a
paid noting charges)
80,000
500


80,500
April
03
Interest A/c Dr.
As A/c
(Allowed interest to A)
1,000
1,000
April
03
Bank A/c Dr.
As A/c
(Paid noting charges & interest to D)
1,500
1,500
April
03
As A/c Dr.
Bills Payable A/c
(Accepted As New draft)
80,000
80,000
Jan. 06 Bills Payable A/c Dr.
As A/c
(Cancelled our acceptance in favour
of A on our becoming insolvent)
80,000
80,000
Jan. 06 As A/c Dr.
Bank
Deficiency
(Made final payment to A)
80,000
40,000
40,000

48


Work Sheet:
Fill in the blanks with suitable words:
(i) Bill of exchange is drawn by the .. upon his ..
(ii) A Promissory Note contains an .. to pay.
(iii) A .. does not require acceptance.
(iv) A sight bill is payable on ..
(v) Grace days are not allowed in case of .. bill
(vi) The amount payable in case of a bill of exchange is always ..
(vii) Noting Charges are borne by the ..
(viii) When a bill is met before the date of its maturity it is called .. of bill.
(ix) The amount charged by this Notary Public for making a noting on the bill is
called..
(x) A bill of exchange may be accepted by a person other then the ..

Worksheets:
On January 01, 2012 Sharma sold goods Rs. 35,000 to Verma on credit and drew upon
him to drew a bill for the same amount payable after two months. Verma accepted the
bill and returned it to Sharma on the same date Sharma discounted the bill from his
bank at 12% p.a. on the maturity of the bill Verma dishonoured the bill and bank paid
Rs. 200 as noting charges Verma requested. Sharrma to drew a new bill upon him
including the noting charges and interest of Rs. 700 payable after two months. Sharma
49

agreed and drew the new bill. On the maturity of the new bill Verma become insolvent
and an amount of 40% was received from him.
Pass necessary journal entries for the above transactions in the books of Sharma and
Verma.

Fill in the Blanks

Answers:
1. Unconditional Order
2. Drawer
3. Drawee
4. Payee
5. Unconditional Promise
6. Acceptor and Maker
7. Bill Receivable
8. Bill Payable
9. Retain, Send and endorse
10. Discounted
11. Endorser
12. Endorsee
13. Dishonoured
14. Noted and Notary Public
15. Noting Charges
16. Old Bill
17. Rebate
18. Credit
19. Debit
50

T R Y A G A I N .
Fill in the blanks;
(i) A bill of exchange is an in writing given by the creditor to the
debtor.
(ii) The maker of a bill of exchange is called the
(iii) The debtor on whom a bill of exchanges is called the.
(iv) There are..parties to a bill of exchange.
(v) The person other than the original creditor, to whom the amount in the bill is
made payable is known as the of the bill.
(vi) The drawer of a bill can
.it in his possession or
.it to the bank for collection or
.it to a third party
(vi) On the acceptance of a bill, the acceptor credits.a/c.
(vii) The drawer/payee of a bill can get the amount of the same before its due
date by getting the same..
(viii) When a bill is not paid, on its due date, it is said to be
(ix) When a bill is dishonored, it is customary to get it ..by a

(x) The fee charged for getting the bill noted about dishonor is called
.
51

(xi) Whoever pay the noting charges, the amount is borne ultimately by the
.
(xii) If noting charges are paid by the drawer himself, the amount is debited
to..
(xiii) When a discounted bill is dishonoured,account is credited by
drawer.
(xiv) is allowed if a bill of exchange is paid before maturity.
(xv) On the acceptance of a bill, the drawer credits..a/c.

(a) Short Answer Questions (Practical)
1. A seller can take one of four steps with a bill. What are these?
2. By what names is each of the following called:
(i) Who endorses the bill of exchange?
(ii) Who accepts the bill of exchange?
(iii) In whose favour the bill of exchange is endorsed.
3. Below is an example of a bill of exchange:
Date: March 9, 2012
Three months after date pay to Daisy or order the sum of twenty five
thousand rupees only for value received.
To D.K.Peter Salim Malik

52

(i) Who is the drawer of the bill?
(ii) Who is the drawer of the bill?
(iii) Who is the payee of the bill?
(iv) What is the maturity date of the bill?
Shiksha Kendra, 2, Community Centre, Preet Vihar,
Delhi-110 092 India
CENTRAL BOARD OF SECONDARY EDUCATION