bill of exchange

BILL OF EXCHANGE

There are various types of negotiable instruments like bill of exchange, promissory notes and cheque etc.

Bill of exchange :  A orders to B pay to C .

A is drawer, B is drawee, acceptor and payer while c is payee.

It is an unconditional order to pay a sum of money  in writing to a definite person. It should be stamped.

Inland bill : if bill is written in india but payable either in India or to a person resident in India.

Example :

A writes bill in Bombay payable to Modi  at America.

A writes bill in Bombay payable to Obama at india.

A writes bill in Bombay payable to modi at india.

 

Foreign  bill : if bill is written outside india but payable any where.

if bill is written in india but payable

outside india to non resident person.

Example :

A writes bill in America payable to any person any where

A writes bill in Bombay payable to Obama at America.

It should be in triplicate, but pay only of them.

It should be noted and protested.

Promissory note :

A promises to B for payment of 1,00,000.

A is drawer, acceptor and payer.

B is drawee, payee.

It is in writing and unconditional obligations of payment of certain sum of money. It can not be bearer.

Difference between B/E and

Bill of exchange Promissory note
Three Two
Undconditional order Promise to pay
Paid by acceptor Drawer
Drawn by creditor debtor
Drawer –secondary and conditional Maker primary and absolute.
Notice of dishonor is required  Not required.
Noting and protesting required. Not required.

Journal entries :

A drawer B acceptor C endorsee
Sale

B account Dr

To sales

 

Purchase

Purchase dr.

To A

Bill drawn

B/R A/c Dr.

To B

 

Bill accepted

A a/c Dr.

To B/P

On due date matured

Bank a/c dr.

To B/R a/c

B/P a/c dr.

To bank

Bill discounted

Bank a/c dr.

Discount dr.

To B/R

No entry
Discounted bill matured

No entry

B/P a/c dr.

To bank a/c

Discounted bill dishonoured

B a/c dr.

To bank

B/P a/c dr.

To A

Endorse bill

C a/c dr.

To B/R

No entry B/R a/c Dr.

To A

Paid on maturity no entry

 

B/P A/c dr.

To bank

Bank A/c Dr.

To B/R

Endorsed bill dishonored

B a/c dr.

To C a/c

 

B/P a/c dr.

To A’s Account

A a/c dr.

To B/R

Accommodation of bills :

When there is a need of funds to the one or more parties, either  one or both may accept the bills and drawer will discount the bill.

Discount will be borne by both in the ration of fund utilizes from such proceeds.

On the date of maturity, accounts will be settled.

A draws the bill of Rs. 100000, b accepts, while B draws the bill of Rs. 50000, A accepts.

A discount B/R at Rs.99000 and 50% sent to B

B discount B/R at Rs.49000 and 40% sent to A

On due date A unable to pay his dues and accepts bill of Rs. 70,000. B discount the bill at Rs. 69,000 and

sent 10,000 to A.

B becomes insolvent able to pay 50% only. Pass j.e.

In the books of A In the books of B
B/R a/c dr. 100000

To B           100000

A a/c dr. 100000

To B/P        100000

B a/c dr.    50000

To B/P       50000

B/R a/c dr.50000

To A             50000

Bank a/c dr. 99000

Discount  dr 1000

To B/R a/c  100000

B a/c dr. 50000

To bank    49500

To discount500

 

Bank a/c dr. 49500

Discount  dr 500

To  A a/c    50000

Bank a/c dr. 49000

Discount  dr 1000

To B/R a/c  50000

Bank a/c dr. 19600

Discount  dr   400

To B  a/c    20000

A a/c dr. 20000

To bank       19600

To discount   400

B a/c dr.    70000

To B/P             70000

B/R a/c dr. 70000

To A             70000

Bank a/c dr. 69000

Discount dr. 1000

To B/R          70000

Bank       dr. 10000

Discount dr.     435

To B             10435

(10000+20000)

69000   : 1000

30000   :       ?

A a/c dr. 10435

To bank       10000

To discount     435

B/P A/C dr. 50000

To bank       50000

B/P A/C dr.  100000

To bank     100000

Bank dr.    19782.5

Bad debt dr. 19782.5

To B                 39565

A  dr. 39565

To bank       19782.5

Todeficiency19782.5

Due before new bill will be considered  as given below

 

 

 

B’s account for (2nd bill)

Particulars Rs. Particulars Rs.
To A 50000 By B/R 100000
To Bank 49500 BY Bank 19600
To discount     500 By discount   400
To balance  20000
120000 120000

B’s account (insolvency)

Particulars Rs. Particulars Rs.
To A 50000 By B/R 100000
To Bank 49500 BY Bank   19600
To discount     500 By discount       400
To B/P  70000 BY Bank   10000
By discount       435
By balance  39565
170000 190000

P draws bill of Rs. 70000. Q accepts the bill. P discounted the bill at Rs. 68000. 70% sent to Q. on due date p unable to pay balance amount but he accepts new bill of 50000 in favour of Q. Q discounted at Rs. 49000. sent to p Rs.  9000 only . p becomes insolvent paid 50% of due. pass j.e.

In the books of P In the books of Q
B/R a/c dr. 70000

To  Q            70000

P a/c dr.   70000

To B/P a/c         70000

Bank a/c dr.68000

Discount dr. 2000

To B/R a/c    70000

Q  a/c dr. 49000

To bank a/c  47600

To Discount   1400

Bank a/c dr. 47600

Discount dr.   1400

To P  a/c          49000

B/P   dr.  70000

To Bank           70000

Q a/c dr. 50000

To B/P          50000

B/R a/c   dr. 50000

To P a/c               50000

Bank a/c dr. 49000

Discount a/c dr.1000

To B/R   a/c          50000

Bank a/c dr. 9000

Discount dr 612.25

To Q a/c    9612.25

P a/c dr  9612.25

To bank              9000

To discount        612.25

49000    :  1000

30000 (21+9)   :     ?

B/P a/c dr. 50000

To Q             50000

P  a/c  dr  50000

To bank a/c      50000

Bank a/c dr 15306

Bad debt dr 15306

To Q             30612

P dr.      30612

To bank            15306

To deficiency   15306