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 |
