180

ACCOUNTANCY

CHAPTER 6

Bills of

Exchange

LEARNING
After studying this chapter, you will be able to:

OBJECTIVES

1 2 3

state the meaning of bill of exchange and promissory note; describe features of bill of exchange and promissory note;

identify the parties to a bill of exchange and a promissory note;

distinguish between a bill of exchange and a promissory note;

explain the meaning of different terms involved in the bill transaction, i.e. term of bill and days of grace, date of maturity, bill after date, negotiation, endorsement, discounting of bill, dishonour and noting of bill, insolvency of acceptor, retirement and renewal of a bill; and record accounting transactions of bills of exchange.

181 BILLS OF EXCHANGE

basis of this definition. Goods can be sold or bought for cash or on credit. When goods are sold or bought for cash, payment is received/ made immediately .On the other hand when goods are sold/bought on credit then payment is deferred to a future date. In such a situation, instruments of credit are used through which the buyer assures the seller that the payment shall be made according to the agreed conditions as stated in the instrument of credit. The instruments of credit in India have been in use since time immemorial and are popularly known as Hundies .The hundies are written in Indian languages. Now-a-days these instruments of credit are called as bills of exchange or promissory notes. The most important point about these instruments is that they contain an unconditional order to pay a certain amount on an agreed date in case of bills of exchange and an unconditional promise to pay a certain sum of money on a certain date in case of promissory notes. These instruments in India are governed by the Indian Negotiable Instruments Act 1881.

1 A bill of exchange must be in writing

and not oral. 2 It is an order to make payment. 3 The order to make payment is unconditional. 4 The maker of the bill of exchange must sign it. 5 The payment to be made must be certain. 6 The date on which payment is made must also be certain. 7 The bill of exchange must be payable to a certain person. 8 The amount mentioned in the bill of exchange is payable either on demand or on the expiry of a fixed period of time. 9 It must be stamped as per the requirement of law. According to the Negotiable Instru-ments Act, a bill of exchange is generally drawn by the creditor on his debtor. It has to be accepted by the debtor or someone else on his behalf. It is called a draft before its acceptance. Therefore, one of the underlying features of a bill of exchange is that it has to be accepted either by the person upon whom it is drawn or by someone else on his/her behalf. For example, Amit sold goods to Rohit on credit for Rs.10,000 for three months. If agreed so, Amit can draw a bill of exchange upon Rohit for Rs. 10,000 payable after three months. Before it is accepted by Rohit it will be called a draft. It will become a bill of exchange only when Rohit writes the word accepted on it and puts his signature to commu-nicate the acceptance.

6.1 Meaning of Bills of Exchange According to the Negotiable Instru-ments Act 1881, a bill of exchange is defined as an instrument in writing containing an unconditional order, signed by the maker, 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. The following features of a bill of exchange emerge out on the

182

ACCOUNTANCY

6.1.1 Parties to a Bill of Exchange There are three parties to a bill of exchange:

1 Drawer is the maker of the bill of

exchange. A seller/creditor who is entitled to receive money from the debtor can draw a bill of exchange upon the buyer/ debtor. The drawer after writing the bill of exchange has to sign it as maker of the bill.

2 Drawee is the person upon whom the

bill of exchange is drawn. Drawee is purchaser of the goods upon whom the bill of exchange is drawn. The dawee has to write the word accepted if he accepts to make the payment given in the bill on the due date and has to put his signatures on it. After the drawee of a bill has signed his assent on the face of the bill, he is called the acceptor and this process is called acceptance. A bill of exchange becomes a legal document after acceptance and binds the drawee to honour the bill on the due date. Acceptance however may be general or qualified. The general accep-tance requires signatures of the acceptor only without stating any conditions, thereto. However, mention of a bank or a specified place of payment or part payment thereof, makes the acceptance qualified.

A qualified acceptance varies the express terms of the bill as

originally drawn and thereby the drawer can refuse to consider the bill as accepted. Sometimes the bill of exchange may be accepted by another person on behalf of the drawee. For example a bill of exchange drawn by Ram upon Shyam may be accepted by Ghanshyam. 1 Payee is the person to whom the payment is made. The drawer of the bill himself will be the payee if he keeps the bill with him till the date of its payment. The payee may change in the following situations.

got the bill discounted, the person who has discounted the bill will become the payee; 1 In case the bill is transferred in favour of a creditor of the drawer then the creditor will become the payee. Normally, the drawer and the payee is the same person. Similarly, the drawee and the acceptor is normally the same person. For example, Mamta sold goods worth Rs.10, 000 to Jyoti and drew a bill of exchange upon her for the same amount payable after three months. Here Mamta is the drawer of the bill and Jyoti is the drawee. If the bill is retained by Mamta for three months and the amount of Rs.10,000 is received by her on the due date than Mamta will be the payee.

2 In case the
drawer has

If Mamta gives away this bill to her

creditor, Ruchi then Ruchi will be the

BILLS OF EXCHANGE

183

the bearer. However, payee.If Mamta gets this bill discounted then according to the the banker will become the payee. Reserve Bank of Act, a In the above mentioned bill of exchange,India promissory note Mamta is the drawer and payable to bearer is
Mamta New Delhi Rs.10,000 1 April 2002 Three months after date pay to me or my order, the sum of Rupees Ten Thousand

illegal. Therefore, a promissory note cannot be made

Stamp

only, for value received.

Accepted (Signed) Jyoti 1.4.2002 73-B, Mahipalpur New Delhi 110 037

(Signed) Mamta 196, Karol Bagh New Delhi

To Jyoti 73-B, Mahipalpur New Delhi 110 037 Fig. 6.1 : Showing the specimen of bills of exchange

containin an Jyoti is the drawee.g Since Jyoti hasunconditi accepted the bill she isonal the acceptor. Supposeundertaki in place of Jyoti the billng signed the is accepted by Ashokby maker, to then Ashok will pay a become the acceptor. certain sum of 6.2 Promissory Note money only to or According to the to the Negotiable Instruorder of a ments Act 1881, a certain promissory note is person, defined as an or to instrument in writing (not being a bank note or a currency note),

payable according to his order to the then the document is bearer. called as a promissory This note. definition suggests that when Following features a personof a promissory note gives aemerge out of the promise above definition. in writing 1 It must be in to pay a writing. certain 2 It must contain sum of an money unconditional unconpromise to pay. ditionally 3 It must be to a signed by the certain maker. person or

4 T
h e m a k er m u st b e a c er ta in

ACCOUNTANCY 184

1 It should be properly stamped.

person. 1 The person to whom payment is to be made must also be certain. 2 The sum payable must also be certain. A promissory note does not require any acceptance because the maker of the promissory note himself promises to make the payment.
n o t e

Ashok Kumar Rs.30,000

To

Stam p

Fig. 6.2 : Showing specimen of a promissory

6.2.1 Parti es to a Pro miss ory Note Ther e are two parti es to a prom issor y note:

1 M
a k er o r D r

a w er is th e pe rs o n w h o m ak es or dr a w s th e pr o m is so ry n

ote to pay a certain amoun t as specifi ed in the promis sory note. He is also called the promis or.

2 Drawe
e/Paye e is the person in whose favour the promis sory note is

d r a w n . H e i s c a ll e d t h e p r o m i s e e . G e n

er all y, th e dr a w ee is al so th e pa ye e, un le ss, it is

other wise ment ione d. In the abov e speci men of prom issor y note, Asho k Kum ar is

the ee or payee tofr draw whom o er orpayment is tom makebe made. Ifth r Harish e who Chander b prom transfers thisa ises promissory n to note in favourk pay of Rohit thenth Rs.3 Rohit wille 0,00 become then 0 payee. th and Similarly, ife HarisHarish b h Chander getsa Chan this n der promissory k is thenote w draw discounted ill

b e c o m e t h e p a y e e .

185 BILLS OF EXCHANGE

6.3 Distinction

between a Bill Exchange and a Promissory Note

of

Both a bill of exchange and a promissory note are instruments of credit and are similar in many ways. However, there are certain basic differences between the two (fig. 6.3). 6.4 Advantages The bills of exchange as instruments of credit are used frequently in business because of the following advantages.

1 Frame for Relationship: A bill of

exchange represents a device, which provides a framework for enabling the credit transaction between the seller /creditor and buyer/debtor on an agreed basis.

payment immediately either by discounting the bill with the bank or by endorsing it in favour of a third party. 1 Conclusive Proof: The bill of exchange is a legal evidence of a credit transaction implying thereby that during the course of trade buyer has obtained credit from the seller of the goods, therefore, he is liable to pay to the seller. In the event of refusal of making the payment, the law requires the creditor to obtain a certificate from the Notary to make it a conclusive evidence of the happening.

2 Easy Transferability: A debt can be

settled by transferring a bill of exchange through endor - sement and delivery.

2 Certainty of Terms and Conditions:

The creditor knows the time when he would receive the money so also debtor is fully aware of the date by which he has to pay the money. This is due to the fact that terms and conditions of the relationship between debtor and creditor such as amount required to be paid; date of payment; interest to be paid, if any; place of payment are clearly mentioned in the bill of exchange.

6.5 Maturity
When a bill of exchange or a promi-ssory note is not payable on demand, the payment is deferred to the date of maturity of the instrument. It is the date on which the instrument becomes due for payment. In arriving at the maturity date three days, known as days of grace, must be added to the date on which the instrument is payable. Thus, if a bill dated March 5 is payable 30 days after date it falls due on April 7, i.e. 33 days after March 5. However, if it were payable one month after date, the due date would be April 8, i.e. one month and 3 days after March 5. But where the date of maturity is a public holiday, the instrument will become due on the

3 Convenient Mode of Credit: A bill of

exchange enables the buyer to buy the goods on credit and pay after the period of credit. However, the seller of goods even after extension of credit can get

18 6

ACCOUNTAN CY

S. N o 1 2 3

Basis

Bills of Exchange

Promissory Note

Drawer Order or Promise Parties

It is drawn by the creditor It contains an order to make payment to There can be there parties it, viz. the drawer, the acceptor and the payee.

It is drawn by the debtor It contains a promise to make payment. There are only two parties to it. The drawer or the maker who draws the promissory note and signs it and the payee to whom the amount is payable. It does not require any acceptance. Drawer cannot be the payee of it. is The liability of the drawee is primary. No notice needs to be given in case of its dishonour. Only one copy is prepared in both the cases.

Acceptance

It requires acceptance by the drawee or someone else on his behalf. Drawer and payee can be the same party drawe Liability of the r secondary and the liability of the acceptor is primary. In case of its dishonour due notice of dishonour is to be given by the holder to the drawer One copy of a bill of exchange is prepared in case of a local bill and three copies are prepared in case of a foreign bill. Stamps are not required to be fixed on the bills of exchange payable on demand otherwise stamps would be necessary.

5 6

Payee Liability

Notice

No. of copies

Revenue Stamps

Stamps have to be fixed on all types of promissory notes.

Fig. 6.3 : Distinction between Bills of Exchange and Promissory Note

Government of India preceding business day. In this case if 8 April which may happen to (maturity) is a public holiday then the 7 Aprilbe the date of will be the maturity date. When an emergent maturity of a bill of holiday is declared under the Negotiableexchange, then the date of maturity will Instruments Act 1881, by the be the next working

day immediately after the holiday. For example, the Government declared a

187 BILLS OF EXCHANGE

holiday on April 5, which happened to be the day on which a bill of exchange drawn by X upon Y for Rs.20,000 became due for payment. Since 5 April has been declared a holiday under the Negotiable Instruments Act, therefore, April 6 will be the date of maturity for this bill. 6.6 Negotiability Negotiability means that the holder of the instrument can transfer the title. Bills of exchange and promissory notes are negotiable instruments within the meaning of Section 13 of Negotiable Instruments Act 1881, however in case of promissory note the negotiation is restricted, but it does not render it to the status of not-negotiable instru-ment. This implies that a bill of exchange can be transferred by negotiation but a promissory note cannot be. However, this is subject to the condition that the holder acquires them

negotiated and becomes payable to the person named therein and to him alone. Bills of exchange and promi-ssory notes can be passed on from one person to another by endorsement and delivery. If a bill of exchange or a promissory note is dishonoured, that is if payment is not made on the due date by the drawee, the amount of bill can be claimed from any of the previous endorsers. 6.7 Endorsement of Bill Any holder may transfer a bill unless its transfer is restricted, i.e. the bill has been negotiated containing words prohibiting its transfer. The bill can be initially endorsed by the drawer by putting his signatures at the back of the bill along with the name of the party to whom it is being transferred. The act of signing and transferring the bill is called endorsement. 6.7.1 Effects of Endorsement

1 without notice of defect in the title of

the transferor, i.e. in good faith,

1 Once an endorsement has been made,

the person endorsing the bill is called an endorser. The person to whom the bill is endorsed is known as an endrosee and the bill is said to have been endorsed.

2 for a consideration, and 3 before maturity.

If these conditions are met, it does not matter if the title of the transferor was defective. Thus, if Rakesh steals a bill of exchange and transfers it to Rajesh who is not aware of Rakeshs mode of acquiring the bill and he takes it over for value and before the date of its maturity, Rajesh will be entitled to get payment on the bill of exchange. However, if the words or order are omitted from the bill, it cannot be

2 After a bill has been endorsed and

delivered to a third person (endorsee), it would become payable to him instead of original holder (endorsee). The endorsee may again endorse it in favour of a fourth person (unless endorsement is restricted)

ACCOUNTANCY 188

1 Endorsement Sans Recourse (i.e.

and this may continue to any extent till the date of maturity. 1 An unrestricted endorsement provides a mechanism for settling the business payments. 6.7.2 Types of Endorsement A bill may be endorsed in any one of the following ways: Without recourse): The endorsement of the bill in this manner enables the endorser to relieve himself from the liability to all subsequent endorsees indicated by the word Sans Recourse added to the signa-tures. This is generally made by persons who acts in a repre-sentative capacity as agents and not as principal. The endorse-ment is done in the following way; Pay Varun or order Signed Ankit Sans Recource

1 Blank Endorsement : It requires

signatures to be put by the transferor, as follows: Signed Raja Ram This makes the bill transferable by mere delivery.

1 Special

Endorsement: Special endorsement necessitates wri-ting the name of the party in whose favour the property rights of the bill are endorsed under the signature of the endorser. Suppose Vishal & Co wants to endorse a bill in favour of Arun & Co., it will be shown at the back of the bill as follows.

1 Facultative Endorsement: This is the

endorsement by which the endorser waives some of the rights to which he is entitled. The right which is given up is clearly stated as a part of the endorsement itself. The endorse-ment is effected in the following manner:

Pay Arun & Co. or order Vishal & Co. Official Signatory or Stamp

Pay Aleem or order Notice of dishonour waived Signed Raja Ram The implication of this is that the notice of dishonour need not be given by the endorsee before demanding the payment from the endorser. 6.8 Accounting Treatment For the person who draws the bill of exchange and gets it back, after its due

1 Restricted Endorsement: This is an

endorsement in favour of a definite person, and to him alone. This restricts further endorsement of the bill. This is expressed as follows: Pay Rakesh only Signed Ajay

189 BILLS OF EXCHANGE

On maturity of the bill

acceptance, it becomes a bill receivable. For the person who accepts it, the same becomes bills payable. In case of a promissory note for the maker it is a bills payable and for the person in whose favour the promissory note is drawn it is a note receivable. Bills/Notes receivables are assets and Bills/Notes payables are liabilities. Bills and Notes are used interchangeably. 6.8.1 Books of Receiver A bill receivable can be treated in the following four ways by its receiver.

Cash/Bank A/c Dr. Bills Receivable A/c

(2) When the bill of exchange is

retained by the receiver with him and sent to bank for collection a few days before maturity.
For sending the bill for collection Bills sent for collection A/c Dr. Bills Receivable A/c

(3) On receiving the advice from the bank

that the bill has been collected
Bank A/c Dr. Bills sent for collection A/c

1 He can retain it till the date of

maturity, and (1) get it collected on date of maturity directly, or (2) get it collected through the banker. 2 He can get the bill discounted from the bank. 3 He can endorse the bill in favour of his Creditor. 4 He can pledge the bill receivable as a security for obtaining cash credit and overeraft facilities. The accounting treatment in the books of receiver under all the four alternatives is given below under the assumption that the bill is duly honoured on maturity by the acceptor.

1. When

the receiver gets discounted from the bank.

Dr.

the

bill

On receiving the bill Bills Receivable A/c Debtors. A/c On discounting the bill Bank A/c Dr.

Discount A/c Dr. Bills Receivable A/c On maturity No Entry

Since the bill becomes the property of the bank, therefore, the bank will collect the amount of the bill from the acceptor and no journal entry will be passed in the books of the receiver.

2. When the bill is endorsed by the receiver

in favour of his Creditor
On receiving the bill Bills Receivable A/c Dr. Debtors A/c On endorsing the bill Creditor A/c Dr. Bills Receivable A/c On maturity No Entry

1. (a) When the bill of exchange is retained

by the receiver with him till the date of its maturity, the following journal entries are passed.
On receiving the bill Bills Receivables A/c Debtors. A/c Dr.

ACCOUNTANCY 190

Since the bill has been transferred in favour of the creditor, therefore the creditor becomes its owner and will receive the payment on maturity. Hence, no entry will be passed in the books of the receiver.

On Pledging the bill No Entry On Maturity (i) Bills sent for collection A/c Bills Receivable A/c Dr.

3. For pledging the bills receivables as a

security for obtaining cash credit and overdraft facilities: Pledging of the bill is a legal-cumfinancial arrangement with the bank, whereby the bank authorizes the customer to make withdrawals up to a specific amount. This fact is noted as a marking on the account of the customer in the banks ledger and no journal entry is required until the customer actually withdraws the money. However, such a pledged bill is always collected through the bank only because bank has the first right to claim the amount of the bill. The journal entries to be passed for this are as follows:

(ii) Bank A/c Dr. Bills sent for collection A/c

6.9 Books of Acceptor/Promissor The following journal entries are passed in the books of the acceptor under all the four circumstances discussed above.
On accepting the bill Creditors A/c Bills payable A/c On maturity of the bill Bills payable A/c Bank A/c D r . D r .

The journal entries in the books of the drawer and the acceptor under all the four cases have been given in the form of a table for better under standing.
the same colle cted direc tly.

1.

When the draw er retai ns the bill with him till the date of its matu rity and gets

Creditor/Drawer Sale/Purchase of goods Receiving/Accepting the bill Collection of the bill Debtors A/c Sales A/c Bills Receivable A/c Debtors A/c Dr.

Debtor/Acce

Purchase A Creditor

Dr.

Creditors A Bills Pa

Cash/Bank A/c Dr. Bills Receivable A/c Dr.

Bills Payabl Cash/Ba

BILLS OF EXCHANGE

191

2.

When the bill is retained by the drawer with him and sent to bank for collection a few days before maturity. Books of Creditor/Drawer Debtors A/c Sales A/c Bills Receivable A/c Debtors A/c Bills sent for collection A/c Bill Receivable A/c Bank A/c Bill sent for collection A/c Dr . Dr . Bills Payable A/c Bank A/c Dr . Dr . Dr . Books of Debtor/Acceptor Purchase A/c Creditors A/c Creditors A/c Bills Payable A/c No Entry Dr . Dr .

Transaction

Sale/Purchase of goods Receiving/Accepting the bill Sending the bill for collection On Receiving the bank advice that the bill has been collected

3.

When the drawer gets the bill discounted from the bank. Books of Creditor/Drawer Debtors A/c Sales A/c Bills Receivable A/c Debtors A/c Bank A/c Discount A/c Bill Receivable A/c Dr . Dr . Dr . Dr . Books of Debtor/Acceptor Purchase A/c Creditors A/c Creditors A/c Bills Payable A/c Dr . Dr .

Transaction

Sale/Purchase of goods Receiving/Accepting the bill Discounting the bill

No Entry Dr .

On maturity of the bill

No Entry

Bills Payable A/c Bank A/c

4.

When the bill is endorsed by the drawer in favour of his creditor. Books of Creditor/Drawer Debtors A/c Sales A/c Bills Receivable A/c Debtors A/c Dr . Dr . Books of Debtor/Acceptor Purchase A/c Creditors A/c Creditors A/c Bills Payable A/c Dr . Dr .

Transaction

Sale/Purchase of goods Receiving/Accepting the bill

Endorsing the bill

Creditors A/c Bill Receivable A/c No Entry

Dr .

No Entry Dr .

On maturity of the bill

Bills Payable A/c Bank A/c

192

ACCOUNTANCY

5. When the bill is pledged as security for obtaining cash credit and overdraft facilities. Transaction Books of Creditor/Drawer Debtors A/c Sales A/c Bills Receivable A/c Debtors A/c Bill sent for collection A/c Dr. Bill Receivable A/c Bank A/c Bills sent for collection Dr . Dr . Dr . Books of Debtor/Acceptor Purchase A/c Creditors A/c Creditors A/c Bills Payable A/c No Entry Dr . Dr . Dr .

Sale/Purchase of goods Receiving/Accepting the bill Sending the bill for collection When bill is collected

Bills Payable A/c Bank A/c

retained the bill till the Illustration 1 date of its Amit sold goods for Rs. 20,000 to Sumit on maturity. Credit on 1 Jan 2002. Amit drew a bill of exchange upon Sumit for the same amount for (2) Amit discounted the three months. Sumit accepted the bill and bill @ 12 % returned it to Amit. Sumit met his acceptance p.a. from his on maturity. Pass the necessary journal entries bank. in the books of Amit and Sumit under the (3) Amit endorsed following circumstances. the bill to his

(1) Amit

Creditor Ankit. (4) On 31 March 2002 Amit sent the bill for collection to its bank. On 5 April 2002 bank advised was received.

Solution

Books of Amit Journal

(1)

When the bill was retained till its maturity.

Date

Particulars

L.F

Debit Rs.

Credit Rs.

2002 Jan1

Sumits A/c Sales A/c (Sold goods to Sumits on credit) Bills Receivable A/c Sumits A/c (Received Sumits acceptance payable after three months) Bank A/c Bills Receivable A/c (Sumit met his acceptance on maturity) Total

Dr.

20,000 20,000

Jan 1

Dr.

20,000 20,000

Apr 4

Dr.

20,000 20,000

60,000

60,000

BILLS OF EXCHANGE

193

(ii) When the bill was discounted from the bank. Journal Debit Date Particulars L.F. Amount Rs. 2002 Mar 1 Amount Rs. Credit

Summit's A/c Sales A/c (Sold goods to Sumit) Bills Receivable A/c Sumits A/c (Received Sumits acceptance for three months) Bank A/c Discount A/c Bills Receivable (Sumits acceptance discounted with the bank) Total

Dr.

20,000 20,000

Mar 1

Dr.

20,000 20,000

Mar 1

Dr. Dr.

19,400 600 20,000

60,000

60,000

(iii) When Amit endorsed the bill in favour of his creditor Ankit. Journal Date Particulars L.F. Debit Amount Rs. Credit Amount Rs.

2002 Jan 1

Sumit's A/c Sales A/c (Sold goods to Sumit on Credit) Bills Receivable A/c Sumits A/c (Received Sumits acceptance for three months) Ankits A/c Bills Receivable A/c (Sumits acceptance

Dr.

20,000 20,000

Jan 1

Dr.

20,000 20,000

Jan 1

Dr.

20,000 20,000

endorsed in favour of Ankit)

Total

60,000

60,000

194

ACCOUNTANCY

(iv) When the bill was sent for collection by Amit to the bank. Journal Date Particulars L.F. Debit Amount Rs. Credit Amount Rs.

2002 Jan 1

Sumits A/c Sales A/c (Sold goods to Sumit on credit) Bills Receivable A/c Sumits A/c (Received Sumits acceptance for three months) Bills sent for collection A/c Bills Receivable A/c (Bills sent for collection) Bank A/c Bills sent for collection A/c (Bills sent for collection collected by the bank

Dr.

20,000 20,000

Jan 2

Dr.

20,000 20,000

Mar 31

Dr.

20,000 20,000

Apr 5

Dr.

20,000 20,000

Total

80,000

80,000

The following Journal entries will be made in the books of Sumit under all the four circumstances. Journal Date Particulars L.F. Debit Amount Rs. 20,000 20,000 20,000 20,000 Credit Amount Rs.

2002 Jan 1

Purchases A/c Dr. Amits A/c (Purchases goods from Amit on credit Amits A/c Dr. Bills Payable A/c (Accepted bill drawn by Amit payable after three months) Bills Payable A/c Bank A/c Dr.

Jan 1

Apr 4

20,000 20,000

(Met acceptance maturity Total 60,000 60,000

BILLS OF EXCHANGE

195

his creditor Poonam in full settlement of Illustration 2 On 15 March 2001 Ramesh sold goods for her debt of Rs. 8,250. Rs.28,000 to Deepak on credit. DeepakOn 15 May Poonam accepted a bill of exchange Drawn upon him discounted the bill by Ramesh payable after three months. On 15 with her bank @ 12% p.a. On the due April Ramesh endorsed the bill in favour of date Deepak met the
Solution Books of Rames h Journal Date Particulars o f P o o n a m i n f u l l S e t t l e m e n t o f h e i n f a v o u r r d e b t o f R s. 8, 2 5 0

bill. Pass the necessary journal entries in the books of Ramesh, Deepak, Poonam.

2001 Mar 15

Deepak A/c Sales A/c (Sold goods to Deepak on Credit) Bills Receivable A/c Deepak A/c (Received Deepaks acceptance for 3 months) Poonams A/c Bill Receivable A/c Discount Received A/c ( B i l l e n d o r s e d

Mar 15

Apr 15

Total

24,250

24,250

196

ACCOUNTANCY

Books of Deepak Journal

Date Particulars L.F. Debit Amount Rs. Credit Amount Rs.

2001 Mar 5

Purchase A/c Ramesh A/c (Purchased goods on credit from Ramesh) Rameshs A/c Bills Payable A/c (Accepted Rameshs draft payable after 3 months) Bills Payable A/c Bank A/c (Met the acceptance in favour of Ramesh on maturity)

Dr.

8,000 8,000

Mar 5

Dr.

8,000 8,000

June 18

Dr.

8,000 8,000

Total

24,000

24,000

Books of Poonam Journal

Date Particulars L.F. Debit Amount Rs. Credit Amount Rs.

2001 May 15

Bills Receivable A/c Discount Allowed A/c (Rameshs A/c (Ramesh endrosed Deepaks acceptance in our favour for discharge has debt of Rs. 8,250 in full settlement) Bank A/c

Dr. Dr.

8,000 250 8,250

May 15

Dr.

7,920

Discount allowed A/c Bills Receivable A/c

Dr.

80 8,000

Total

16,250

16,250

197 BILLS OF EXCHANGE

When the bill was sent for collection by Anju Manjus A/c Dr. Bill sent for collection A/c

6.10 Dishonour of a Bill Bill is said to have been dishonoured when the acceptor fails to meet his commitment on the date of maturity. In this situation liability of the acceptor comes into being again. Therefore the entries made on the receipt of the bill should be reversed. For example Anju received bill of exchange accepted by Manju, which was dishonoured. The entries of dishonour will be as follows in the books of Anju (receiver) :
When the bill was kept by Anju with her till maturity Manjus A/c Dr. Bill Receivables A/c When the bill was endorsed by Anju in favour of Sandhya Manjus A/c Dr. Sandhyas A/c When the bill was discounted by Anju with his bank Manjus A/c Bank A/c Dr.

Illustration 3 On 1.1.2002 Shieba sold goods to Vishal for Rs.10,000 and drew upon him a bill of exchange for 2 months. Vishal accepted the bill and returned it to Shieba. On the date of maturity the bill was dishonoured by Vishal. Pass the necessary journal entries in the following cases in the books of Shieba and Vishal.

1 When the bill was kept by Shieba till

the date of its maturity.

2 When the bill was discounted by

Shieba from his bank immediately @ 12% p.a. 3 When the bill was endorsed by Shieba in favour of his creditor Lal Chand. 4 When the bill was sent for collection to the bank.

(1)

Wh en the bill was kep t by Shi eba till its ma turi ty

Journal Date Particulars L.F.

Debi Amoun Rs

2002 Jan 1

Vishals A/c Sales A/c (Sold goods to Vishal) Jan 1 Bills Receivable A/c Vishals A/c (Received Vishals acceptance) Vishals A/c Bills Receivables A/c Feb 4 (Vishal dishonoured his acceptance) Total

Dr. Dr.

10,00

Dr.

10,00

Dr.

10,00

30,00

198

ACCOUNTANCY

(2)
Date

When the bill was discounted by Shieba Journal Particulars L.F. Debit Amount Rs. 10,000 10,000 10,000 10,000 Credit Amount Rs.

2002 Jan 1

Jan 1

Vishals A/c Sales A/c (Sold goods to Vishal) (Bills Receivable A/c) Vishals A/c (Received Vishals acceptance) Bank A/c Discount A/c Bills Receivable A/c (Vishals Bill discounted) Vishals A/c Bank A/c (Discounted bill dishonoured by Vishal) Total

Dr. Dr. Dr.

Jan 1

Dr. Dr.

9,800 200 10,000

Mar 4

Dr.

10,000 10,000

40,000

40,000

(iii) When the bill was endorsed by Shieba to Lal Chand Journal Date Particulars L.F. Debit Amount Rs. Credit Amount Rs.

2002 Jan 1

Vishals A/c Sales A/c (Sold goods to Vishal) Bills Receivable A/c Vishals A/c (Receivable Vishals acceptance Lal Chands A/c Bills Receivable A/c (Vishals acceptance endorsed in favour of Lal Chand)

Dr.

10,000 10,000

Jan 1

Dr.

10,000 10,000

Jan 1

Dr.

10,000 10,000

Mar 4

Vishals A/c Dr. Lal Chands A/c (Endorsed bill dishonoured by Vishal) Total

10,000 10,000

40,000

40,000

BILLS OF EXCHANGE

199

The following entires will be passed in the books of Vishal in all the four cases Books of Vishal Journal Date Particulars L.F. Debit Amount Rs. Credit Amount Rs.

2002 Jan 1

Purchases A/c Shiebas A/c (Purchased goods from Shieba) Shiebas A/c Bills Payable A/c (Accepted Shiebas draft) Bills Payable A/ Shiebas A/c (Acceptance in favour of Shieba dishonoured) Total

Dr.

10,000 10,000

Jan 1

Dr.

10,000 10,000

Mar 4

Dr.

10,000 10,000

30,000

30,000

6.11 Noting Charges A bill of exchange should be duly presented for payment on the date of its maturity. Acceptor is absolved of his liability if the bill is not duly presented. Proper presentation of the bill means that it should be presented on the date of maturity to the acceptor during business working hours. To establish beyond doubt that the bill was dishonoured, despite its due presentation, it has got preferably to be noted by Notary Public. Therefore, Noting authenticates the facts of dishonour. For providing this service, a fees is charged which is called Noting Charges.

The following facts are generally noted by the Notary:

3 The amount
of noting charges. The entries for noting charges in the drawers books will be as follows:
When Drawer himself pays Acceptors A/c Dr. Cash A/c Where endorsee pays Acceptors A/c Dr. Endorsee A/c

1 Date,

fact and reasons of dishonour,

2 If the bill is
not expressly dishonoured, the reasons why he treats it as dishonoured, and

200

ACCOUNTANCY

When the bank pays on discounted bill

Noting charge A/c Dr.

for Rs.15,000 to B and Acceptors A/c Dr. immediately draw a Bank A/c bill upon him on payable It may be kept in mind that whosoever 1.1.2002 pays the noting charges, ultimately these have after 3 months. On to be borne by the acceptor. That is why thematurity the bill was acceptor is invariably debited in the drawersdishonoured and Rs. books. This is because he is responsible for the 50 were paid by the dishonour of the bill and hence, he has to bear holder of the bill as these expenses. For recording the notingnoting charges. Pass charges in his books, the acceptor opensthe necessary journal Noting Charges Account. He debits the notingentries in the books charges account and credits the drawersof A and B under the following cases: account.
Solution Books of A Journal

Acceptors A/c Dr. Drawers A/c Bank A/c When the bank pays in the event of sending the Illustration 4 bill for collection to the A sold goods bank

1 When the bill

was kept by A till its maturity. 2 When the bill was discounted by A with his bank immediately @ 12% p.a. 3 When the bill was endorsed by A in favour of his creditor C.

(1)

When the bill was retained by A

Date

Particulars

L.F.

Debit Amount Rs.

Credit Amount Rs.

2002 Jan 1

Bs A/c Sales A/c (Sold goods to B) (Bills Receivable A/c) Bs A/c (Received Bs acceptance) Bs A/c Bills Receivable A/c Cash A/c (B dishonoured his acceptance and paid Rs. 50 as noting charges) Total

Dr.

15,000 15,000

Jan 1

Dr.

15,000 15,000

Apr 4

Dr.

15,050 15,000 50

45,050

45,050

BILLS OF EXCHANGE

201

(2)
Date

When the bill was discounted with the bank Journal Particulars L.F. Debit Amount Rs. 15,000 15,000 Credit Amount Rs.

2002 Jan 1

Bs A/c Sales A/c (Sold goods to B) (Bills Receivable A/c) Bs A/c (Received Bs acceptance payable after three months) Bank A/c Discount A/c Bills Receivable A/c (Bs acceptance discounted) Bs A/c Bank A/c (B dishonoured his acceptance on maturity and bank paid noting charges) Total

Dr.

Jan 1

Dr.

15,000 15,000

Jan 1

Dr. Dr.

14,550 450 15,000

Apr 4

Dr.

15,050 15,050

60,050

60,050

(iii) When the bill was endrosed to C Journal Date Particulars L.F. Debit Amount Rs. 15,000 15,000 Credit Amount Rs.

2002 Jan 1

Bs A/c Sales A/c (Sold goods to B) Bills Receivable A/c Bs A/c (Received Bs acceptance) Cs A/c Bills Receivable A/c

Dr.

Jan 1

Dr.

15,000 15,000

Jan 1

Dr.

15,000 15,000

(Cs acceptance dishonoured) Apr 4 Bs A/c Dr. Cs A/c (B dishonoured disacceptance and C paid Rs. 50 as noting charges) 15,050 15,050

Total

60,050

60,050

202

ACCOUNTANCY

The following Journal entires will be made in the books of B in all the three cases Books of B Journal Date Particulars L.F. Debit Amount Rs. 15,000 15,000 Credit Amount Rs.

2002 Jan 1

Purchase A/c As A/c (Purchased goods from A) As A/c Bills Payable A/c (Accepted As draft) Bills Payable A/c Noting charges A/c As A/c (Acceptance in favour of a dishonoured) Total

Dr.

Jan 1

Dr.

15,000 15,000

April 4

Dr. Dr.

15,000 50 15,050

45,050

45,050

of Rs.10,000 may be cancelled on a cash 6.12 Renewal of the Bill payment of Rs.3000 Sometimes the acceptor of the bill finds itand on acceptance of difficult to meet the obligation of the bill on a new bill for the maturity. He may therefore, approach thebalance of Rs.7000 drawer with the request to renew the existing plus interest as bill, which may be exceeded to by the drawer.agreed between the If it is so the old bill is to be cancelled and the parties. fresh bill with new terms of payment is to be drawn and duly accepted and delivered. Since, The journal cancellation of the bill is mutually agreed upon,entries in the books noting of the bill is not required. of the drawer and the acceptor will be the The acceptor may have to pay interest tosame as that of the drawer for the extended period of credit. dishonour of bill. The interest is paid in cash or may be include Cash paid by the in the amount of new bill. Sometimes, theacceptor towards original bill may be cancelled partly for a newinterest is treated as bill and partly for cash. For example, a bill income. However, if interest is not paid in

cash the drawer in his books debits the acceptor and credits the interest account. The acceptor debits the interest and credits the drawers account in his books. The journal entries for the cancellation of the old bill, for interest and for the drawal / acceptance of the new bill in the books of the drawer and acceptor have been given below:

BILLS OF EXCHANGE

203

Transaction Cancellation of old bill Interest

Books of Drawer Acceptors A/c Bills Receivable A/c Acceptors A/c Interest A/c Bill Receivable A/c Acceptors A/c Dr.

Books of Acceptor Bills Payable A/c Drawers A/c Interest A/c Drawers A/c Drawers A/c Bills Payable A/c Dr . Dr . Dr .

Dr.

New Bill

Dr.

and draw a new bill upon him for a Illustration 5 period of 2 months. On 1.2.2002 Ravi sold goods to Mohan for He further agreed to Rs.18,000, Rs.3,000 were paid by Mohan pay interest in cash immediately and for the balance he accepted a to Ravi @ 12% p.a. three months bill drawn upon him by Ravi. On Ravi agreed to the date of maturity of the bill Mohan requested Mohans request and Ravi to cancel the old bill cancelled the old bill

and drew a new bill. The new bill was met on maturity by Mohan. Pass the Journal entries in the books of Ravi and Mohan.

Solution Books of Ravi Journal

Date

Particulars

L.F.

Debit Amount Rs.

Credit Amount Rs.

2002 Feb 1

Mohans A/c Sales A/c (Sold goods to Mohan)

Dr.

18,000 18,000

Feb 1

Cash A/c Dr. Bills Receivable A/c Dr. Mohans A/c (Received Rs. 3000 in cash from Ravi and an acceptance for the balance) Mohans Account Cash A/c Bills Receivable A/c Interest A/c (Cancelled old bill and Ravi paid Rs 300 as interest Balance c/f Dr. Dr.

3,000 15,000 18,000

May 4

15,000 300 15,000 300

51,300

51,300

204

ACCOUNTANCY

May 4

Balance b/f Bills Receivable A/c Mohans A/c (Received new acceptance from Mohan) Bank A/c Bills Receivable A/c (Mohan met his new acceptance) Total

Dr.

51,300 15,000

51,300 15,000

July 7

Dr.

15,000 15,000

81,300

81,300

Books of Mohan Journal Date Particulars L.F. Debit Amount Rs. 18,000 18,000 Credit Amount Rs.

2002 Feb 1

Purchases A/c Ravi A/c (Purchased goods from Ravi) Ravis A/c Cash A/c Bills Receivable A/c (Received cash from Ravi & his acceptance) Bills Payable A/c Interest A/c Ravi A/c Cash A/c (Old bill cancelled by Ravi and paid Rs. 300 as interest) Ravis A/c Bills Payable A/c (Accepted new bill drawn by Ravi) Bills payable A/c Bank A/c (Met acceptance of the new

Dr.

Feb 1

Dr.

18,000 3,000 15,000

May 4

Dr. Dr.

15,000 300 15,000 300

May 4

Dr.

15,000 15,000

July 7

Dr.

15,000 15,000

bill on maturity) Total 81,300 81,300

BILLS OF EXCHANGE

205

agreed to pay Rs. 10,500 in cash Illustration 6 including Rs.500 On 15.1.2002 Sachin sold goods Rs. 30,000 to Narain and drew upon the later a bill for the interest and accept a same amount payable after 3 months . The bill new bill for two for the was accepted by Narain. The bill wasmonths remaining Rs.20,000. discounted by Sachin from his bank for Rs.29,250 on 31.1.2002. On maturity of the bill The new bill was Narain requested Sachin to cancel the bill . Heendorsed by Sachin in favour of his further creditor Kapil for
Solution
Books of Sachin Journal

settling a debt of Rs.20,800. The new bill was duly met by Narain on maturity. Pass the necessary journal entries in the books of Sachin and Narain.

Date

Particulars

L.F.

Debit Amount Rs. 30,000

Credit Amount Rs.

2002 Jan 15

Narain A/c Sales A/c (Sold goods to Narain) Bills Receivable A/c Narain A/c Bills Receivable A/c (Received Narains acceptance) Bank A/c Discount A/c Bills receivable A/c (Narains Acceptance discounted with bank) Narains A/c Bank A/c Interest A/c (Narains acceptance cancelled) Bank A/c Bills Receivable A/c Narain A/c (Received cash from Narain and a new acceptance for the balance) Kapil A/c Bills Received A/c Discount Received A/c Narains acceptance endorsed in favour of Kapil and he allowed discount) Total

Dr.

30,000

Jan 15

Dr.

30,000 30,000

Jan 31

Dr. Dr.

29,250 750 30,000

April 19

Dr.

30,500 30,000 500

April 19

Dr. Dr.

10,500 20,000 30,500

April 19

Dr.

20,800 20,000 800

1,71,800

1,71,800

206

ACCOUNTANCY

Books of Narain Journal Date Particulars L.F. Debit Amount Rs. 30,000 30,000 Dr. 30,000 30,000 Credit Amount Rs.

2002 Jan 15

Purchases A/c Sachin A/c (Purchased goods from Sachin) Sachin A/c Bills Payable A/c (Accepted Sachins draft)

Dr.

Jan 15

Apr 19

Bills Payable A/c Dr. Interest A/c Dr. Sachin A/c (Cancelled old bill & Sachin charged interest) Sachin A/c Bank A/c Bills Payable A/c (Paid Sachin and accepted a new draft for the balance) Bills Payable A/c Bank A/c (Met new acceptance on maturity) Dr.

30,000 500 30,500

Apr 19

30,500 10,500 20,000

Jul 22

Dr.

20,000 20,000

Total

1,41,000

141,000

6.13 Retiring of Bill There are instances when a bill of exchange is arranged to be retired before the due date by mutual understanding between the drawer and the drawee. This happens when the acceptor of the bill has funds at his disposal and makes a request to the drawer to accept the payment of the bill before its maturity. If the holder agrees to do so, the bill is said to have been retired.

6.13.1 Effects of Retiring The retiring of a bill draws a curtain on the bill transactions before the expiry of its normal term. To encourage the retirement of the bill,

the holder allows some discount called Rebate calculated at a certain on retired bills for the period between date of rate of discount. retirement and maturity. The rebate is

207 BILLS OF EXCHANGE

Books of the Acceptor

6.13.2 Accounting Treatment The accounting treatment on the retirement of a bill is similar to the accounting treatment when a bill is honoured by the acceptor on the due date in the ordinary course. The only difference between the two relates to the granting of rebate. The following Journal entries are passed.
Books of the Holder Cash A/c Rebate on Bills A/c Bills Receivables A/c D r . D r .

Bills Payable A/c Dr. Cash A/c Rebate on bills A/c (Acceptance retired and rebate received)

Illustration 7 A sold goods Rs.10,000 to B on 1.1.2001 and immediately draw a bill on B for the same amount B accepted the bill and returned it to A. On March 4, 2001 B retired his acceptance under rebate of 6% per annum. Record these transactions in the books of A and B by passing Journal entries and prepare the necessary ledger accounts. Books of A Journal

(Acceptor retired his acceptance and allowed rebate)

Amoun Rs 2001 Jan 1 Bs A/c Sales A/c (Sold goods to B) Bills Receivable A/c Bs A/c (Received Bs acceptance for three months) Cash A/c Rebate on bills A/c Bills Receivable A/c (B tried his acceptance and rebate allowed to him) Total Dr.

10,00

Jan 1

Dr.

10,00

Mar 4

Dr. Dr.

9,95 5

30,00

208

ACCOUNTANC Y

Bs Account Dr. J . F Cr.

Date

Particulars

J.F

Amount Rs.

Dat e

Particula rs

Amount Rs.

2001 Jan 1

Sales

10,000

200 1 Jan1

Bills Receivable

10,000

10,000

10,000

Bill Receivable Account Dr. Date Particulars J.F Amount Rs. Dat e Particula rs J . F Cr. Amount Rs.

2001 Jan 1

Bs A/c

10,000

200 1 Mar 4

Cash Rebate on Bills

9,950 50

10,000

10,000

Books of B Journal Particula rs De bit Amount Rs.

Date

L.F.

Credit Amount Rs.

2001 Jan 1 A/ Purchases c As A/c (Purchased goods from A) As A/c Bills Payable A/c Dr. 10,000 10,000

Jan 1

Dr.

10,000 10,000

(Accepted As draft payable after three months) Mar 4

Bills Payable A/c Dr. Cash A/c Rebate on Bills A/c (Acceptance in favour of A retired and rebate received) Total

10,000 9,950 50

30,000

30,000

BILLS OF EXCHANGE

209

As Account Dr. Date 2001 Jan 1 Particulars J.F. Amount Rs. 10,000 Date 2001 Jan 1 Particulars J.F . Cr. Amount Rs. 10,000

Bills Payable

Purchases

10,000 Bills Payable Account Dr. Date 2001 Jan 1 Particulars J.F. Amount Rs. 9,950 50 Date 2001 Jan 1 Particulars J.F .

10,000

Cr. Amount Rs. 10,000

Cash Rebate on Bills

As A/c

10,000

10,000

The following will be the journal 6.14 Insolvency entries for this in the A person may find himself in a situation when books of debtor and his liabilities exceed the realizable value of hiscreditor. assets and fails to honour his commitments. In such a situation, he may approach the court for Books of Creditor declaring him insolvent. If the court accept his Bank A/c Dr. request, the debtor is declared as insolvent Bad Debts A/c Dr. and the administrator is appointed by the court Debtors A/c for realizing the assets and settlement of liabilities. If realized value of assets is less than Books of Debtor the total claim the creditor are paid Creditors A/c Dr. proportionately. The portion of unpaid Bank A/c liabilities is called bad debts/ deficiency from Deficiency A/c the view point of creditor (drawer of the bill) and from the view point of the acceptor Illustration 8 respectively. X sold goods

Rs.10,000 to Y on 1.1.2001 and drew upon him a bill for the same amount of three months. Y accepted the bill and returned it to X. On the same date X got the bill discounted with his bank at 10% per annum.

210

ACCOUNTANCY

X endorsed the The bill was dishonoured on the due date first bill to Z and the and the bank paid Rs. 50 as noting charges. X same was duly paid agreed to accept a sum of Rs. 5,300 in cash on maturity. The second bill from Y and agreed to draw two new bills on Y. was dishonoured as one for Rs. 3,000 for two months and the other Y became insolvent for Rs. 2,000 for three months in full and a dividend of 25 satisfaction of his claim. paise in the rupees Y accepted the bills and returned term to was received from his estate. X. Books of X Journal

Pass necessary journal entries to record these transactions in the books of X and Y and prepare Ys account in the books of X and Xs account in the books of Y.

Date

Particulars

L.F.

Debit Amount Rs.

Credit Amount Rs.

2001 Jan 1

Jan 1

Ys A/c Sales A/c (Sold goods to Y) Bills Receivable A/c Y A/c (Received Ys acceptance) Cash A/c Discount A/c Bills Receivable A/c Ys acceptance discount with bank) Ys A/c Bank A/c (Y dishonoured his acceptance on maturity and back paid Rs. 50 as noting charges Cash A/c Ys A/c (Partial payment received from Y) Ys A/c Interest A/c (Interest for the entended period debited to Y) Bill Receivable A/c Ys A/c (Received two acceptance from Y) Balance c/f

Dr.

10,000 10,000

Dr.

10,000 10,000

Jan 1

Dr. Dr.

9,750 250 10,000

Jan 1

Dr.

10,050 10,050

April 4

Dr.

5,300 5,300

April 4

Dr.

250 250

April 4

Dr.

5,000 5,000

50,600

50,600

BILLS OF EXCHANGE

211

Apr 4 Apr 4

Balance b/f Zs A/c Bills Receivable A/c (Ys acceptance endorsed in favour of Z) Ys A/c Bills Receivable A/c (Y dishonoured the second bill) Cash A/c Bad Debts A/c Ys A/c (A dividend of 25 paise in a rupee received from Ys estate and the balance written off as bad debts) Total Dr.

50,600 3,000

50,600

3,000

Jul 7

Dr.

2,000 2,000

Jul 7

Dr. Dr.

500 1,500 2,000

57,600

57,600

Ys Account Dr. J.F . Amoun t Rs. J.F . Cr.

Date

Particulars

Date

Particulars

Amount Rs.

2001 Jan 1 Apr 4 Apr 4 Jul 7 Sales Cash Interest Bills Receivable 10,000 10,050 250 2,000

2001 Jan 1 Apr 4 Apr 4 Jul 7 Jul 7 22,300 Bills Receivable Cash Bill Receivables Cash Bad Debts 10,000 5,300 5,000 500 1,500 22,300

212

ACCOUNTANC Y

Books of Y Journal Date Particulars L.F. Debit Amount Rs. 10,000 10,000 Credit Amount Rs.

2001 Jan 1

Purchases A/c Xs A/c (Purchased goods from X) Xs A/c Bills Payable A/c (Accepted Xs draft)

Dr.

Jan 1

Dr.

10,000 10,000

Apr 4

Bills Payable A/c Dr. Noting Charge A/c Dr. Xs A/c (Acceptance in favour of X dishonoured) Xs A/c Cash A/c (Partial Payment made to X) Interest A/c Xs A/c (Interested on extended Credit period allowed to X) Xs A/c Bills Payable A/c (Accepted two drafts of X) Bills Payable A/c Cash A/c (Met acceptance in favour of X on maturity) Dr.

10,000 50 10,050

Apr 4

5,300 5,300

Apr 4

Dr.

250 250

Apr 4

Dr.

5,000 5,000

Jun 7

Dr.

3,000 3,000

Jul 7

Bills Payable A/c Dr. Xs A/c (Acceptance in favour of X dishonoured on becoming Insolvent) Xs A/c Dr.

2,000 2,000

Jul 7

2,000

Cash A/c Deficiency A/c (Dividend of 25 paise a rupee paid to Xs account transferred to insolvent account)

500 1,500

Total

42,600

42,600

BILLS OF EXCHANGE

213

Xs Account Dr. J.F . Cr.

Date 2001 Jan 1 Apr 4 Apr 4 Jul 4 Jul 4

Particulars

J.F.

Amount Rs. 10,000 5,300 5,000 500 1,500 22,300

Date 2001 Jan 1 Apr 4 Apr 4 Apr 4 Jun 7

Particulars

Amount Rs. 10,000 10,000 50 250 2,000 22,300

Bills Payable Cash Bills Payable Cash Deficiency

Purchases Bills Payable Noting Charges Interest Bills Payable

An important point in connection 6.15 Bills Receivable and Bills with these subsidiary Payable Books books for bill When large number of bills are drawn and transactions is that accepted, their recording by means of journalthey do not record entry for every transaction relating to the billsthe entire range of become a very cumbersome and timetransactions relating consuming exercise. It is then advisable to to the bills, e.g., record them separately in special subsidiary endorsement, booksthe bills receivables in the Bills dishonour, Receivable Book and the bills payable in the discounting, Bills Payable Book. The reason for the use of cancellation, subsidiary books for recording bill transaction retirement, etc. a part is the same as that in the case of other from a passing subsidiary books for cash, purchases, sales and reference for these the like. aspects.
Bills Receivable Book

6.15.1 Bills Receivable Books It has been designed as a summary of information regarding a duly accepted bill received by a drawer. All the details of the billdate, acceptors name, amount, term, place of payment, etc. are entered in the bills receivable book for presentation and further reference.

No. of Bill

Date Received

Dat e of Bill

From whom receive d

Drawe r

Accept or

Where Payable

Ter m

Du e Dat e

Ledge r Folio

Amount

Cas h Boo k Foli o

Remark s

Fig. 6.4 :

Showing

specimen bills receivable book

214

ACCOUNTANCY

The Bills Account, The proforma of a bills receivable book isPayable representing as it given on page 213. The bills receivable book, like any other does the liability of acceptor in subsidiary book, is totaled periodically. Thisthe respect of bills total is debited to the Bills Receivable Account where as the account of every accepted by him, individual debtor form whom the bills receivedalways has a credit is credited in the ledger. The bills receivable balance, if any. The account is the account of an asset and would credit balance of this on any always have debit balance. This balance on anyaccount particular date must date would represent the amount of bills be the same as the receivable unmatured and on hand. total amount worth of bills payable yet to 6.15.2 Bills Payable Book be presented for as It is maintained like a bills receivable book. It payment ascertained from the is meant to record all the details, relating to the bills accepted by a person or a party, which are bills payable book. retained for being use in the future, in case of need. The proforma of a bills payable book is given in (Figure 6.5). Illustration 9 Enter the following The postings from this books are to the transactions in the debit of the account of every creditor to whom Bills Receivable and acceptance has been given and the periodical Bills Payable books total of the books is credited to the Bills maintained by a Payable Account in the ledger. trader and post them

in the ledger as well: 2 0 0 2 J a n 7 Received from S. Mitra bill duly accepted for Rs. 1,325 dated January 4, payable three months after date. Jan 9 Accepted S.Wardens draft for Rs. 970 at two months. Jan 13 Pradhan drew on the trader at three months date and the same was accepted for Rs. 390.

Bills Payable Book

No. of Bill

Date of Bill

To whom given

Drawe r

Paye e

Where Payable

Term

Du e Dat e

Ledg er Folio

Amount

Date Paid

Cas h Boo k Foli o

Remarks

Fig. 6.5 :

Showing

specimen bills payable

215 BILLS OF EXCHANGE

Jan 23 Jan 14 Drew on R.Rakesh at one month for Rs. 250 and he accepted the draft next day. Jan 18 Gave acceptance at two months for Rs. 420 to S.Parkar. Jan 21 Received from G.Ghosh his acceptance for Rs. 310 at two months. Jan 22 Received from D. Dhiman, A. Vakils acceptance for Rs. 200 at three months from Jan 17. K.Kanga accepted my draft at one month for Rs. 300. Jan 27 Received from C.Shah bill for Rs. 350 dated January 20, accepted by P. Parson and drawn by M. Meyers., payable two months after date. Jan 31 Gave acceptance for Rs. 215 at one month to A. Roberts.
of Jan 22 Bill Receivable Book 5 Jan 23 4 6 Jan 27 1 2
2002

of Bill

given

Payable

Bills
No. of Bill Date Receive d

2002 Jan 9 Jan 13 Jan 18 Jan 31 S. Warden Pradh an S. Parka r A. Roberts S. Warden Pradhan S. Parkar A. Roberts

mo

mo

1 2 3

Jan 7 Jan 15 Jan 21 No. Date

3 4

mo

mo

Total : Rs. 1,995

216

ACCOUNTANC Y

S.Mitras Account Dr. J . F . Cr.

Date 2002 Jan 1

Particulars

J.F.

Amount Rs. 1,325

Date 2002 Jan 7

Particulars

Amount Rs. 1,325

Sales

Bills Receivable

1,325

1,325

R. Rakeshs Account Dr. J . F . Cr.

Date 2002 Jan 14

Particulars

J.F.

Amount Rs.

Date 2002

Particulars

Amount Rs.

Sales

250

Jan 15

Bills Receivable

250

250 G. Ghoshs Account Dr. J . F .

250

Cr.

Date 2002 Jan 21

Particulars

J.F.

Amount Rs.

Date 2002

Particulars

Amount Rs.

Sales

310

Jan 21

Bills Receivable

310

310

310

D. Dhimans Account Dr. J . F . Cr.

Date 2002 Jan 22

Particulars

J.F.

Amount Rs.

Date 2002

Particulars

Amount Rs.

Sales

200

Jan 22

Bills Receivable

200

200

200

BILLS OF EXCHANGE

217

K. Kangas Account Dr. J.F . Cr.

Date 2002 Jan 23

Particulars

J.F.

Amount Rs. 300

Date 2002 Jan 23

Particulars

Amount Rs. 300

Sales

Bills Receivable

300 C. Shahs Account Dr. J.F .

300

Cr.

Date 2002 Jan 27

Particulars

J.F.

Amount Rs. 350

Date 2002 Jan 27

Particulars

Amount Rs. 350

Sales

Bills Receivable

350 Bill Receivables Account Dr. J.F .

350

Cr.

Date 2002 Jan 31

Particulars

J.F.

Amount Rs. 2,735

Date 2002 Jan 31

Particulars

Amount Rs. 2,735

Sundries

Balance c/f

2,735

2,735

S. Wardens Account Dr. Date 2002 Particulars J.F. Amount Rs. Date 2002 Particulars J.F . Cr. Amount Rs.

Jan 9

Bill Payable

970

Jan 9

Purchases

970

970

970

218

ACCOUNTANC Y

Pradhans Account Dr. J . F . Cr.

Date 2002 Jan 13

Particulars

J.F.

Amount Rs. 390 390

Date 2002 Jan 13

Particulars

Amount Rs. 390 390

Bill Payable

Purchases

S. Parkars Account Dr. J . F . Cr.

Date 2002 Jan18

Particulars

J.F.

Amount Rs. 420 420

Date 2002 Jan 18

Particulars

Amount Rs. 420 420

Bill Payable

Purchases

A. Roberts Account Dr. J . F . Cr.

Date 2002 Jan31

Particulars

J.F.

Amount Rs. 215

Date 2002 Jan 31

Particulars

Amount Rs. 215

Bill Payable

Purchases Receivable

215

215

Bill Payables Account Dr. Cr.

Date 2002 Jan 31

Particulars

J.F.

Amount Rs.

Date 2002

Particulars

J . F .

Amount Rs.

Balance c/f

1,995

Jan 31

Sundries Receivable

1,995

1,995

1,995

bill transactions from the two books to the accounts of debNote : The drawings and acceptance of a bill always pre-supposes some tors and creditors, it has been necessary sales and purchases background of sale or purchase transaction. Therefore, in posting have been effected.

BILLS OF EXCHANGE

219

same to Vinay.The second bill was Illustration 10 discounted with the On 1 Jan 2002 Vinay sold goods to Ravi for Rs. bank on 4 Jan at 12% 8,000 and drew four bills of exchange on him. The first for Rs. 1,500 for one month the p.a and on the same second for Rs. 1,000 for two months. The third day the third bill was for Rs. 2,000 for three months and the fourth endorsed to Ahmad. for Rs. 3,500 for four months. Ravi accepted The first bill was sent for collection on 30 the bills and returned the Jan. On 4 Feb the
Books of Vinay Journal

bank informed that the bill had been collected. All the bills were met by Ravi on maturity.Pass journal entries in the books of Vinay and Ravi.

Date

Particulars

L.F.

2002 Jan 1

Ravi A/c Sale A/c (Sold goods to Ravi on Credit) Bill Receivable A/c Ravi A/c (Four bills of Rs. 1,500, Rs. 1,000, Rs. 2,000 & Rs. 3,500 payable after one two, three, and four months respectively accepted by Ravi) Bank A/c Discount A/c Bill Receivable A/c (Second bill discounted) Ahmad A/c Bills Receivable A/c (Third bill endorsed in favour of Ahmad) Bills sent for collection A/c Bills Receivable A/c (First bill collected by Bank) Bank A/c Bills sent for collection A/c (First bill collected by Bank) Bank A/c Bills Receivable A/c (Fourth bill met by Ravi on marutity) Total

Dr.

Debit Amount Rs. 8,000

Credit Amount Rs. 8,000

Jan 1

Dr.

8,000 8,000

Jan 4

Dr. Dr.

980 20 1,000

Jan 4

Dr.

2,000 2,000

Jan 30

Dr.

1,500 1,500

Feb 4

Dr.

1,500 1,500

May 3

Dr.

3,500 3,500

25,500

25,500

220

ACCOUNTANC Y

Books of Vinay Journal Date Particulars L.F. Debit Amount Rs. 8,000 8,000 Credit Amount Rs.

2002 Jan 1

Purchases A/c Vinay A/c (Purchase goods on credit from Vinay) Vinays A/c Bills payable A/c (Accepted four bills drawn by Vinay) Bill Payable A/c Bank A/c (Met first acceptance in favour of Vinay on maturity) Bill payable A/c Bank A/c (Met 2nd acceptance in favour of Vinay on maturity Bills payable A/c Bank A/c (Met 3rd acceptance in favour of Vinay on maturity) Bills Payable Bank A/c (Met 4th bill in favour of Vinay on maturity) Total

Dr.

Jan 1

Dr.

8,000 8,000

Feb 3

Dr.

1,500 1,500

Mar 3

Dr.

1,000 1,000

Apr 3

Dr.

2,000 2,000

May 3

Dr.

3,500 3,500

24,000

24,000

creditor Chetan. The third bill was Illustration 11 discounted on 3 Ashok sold goods Rs. 14,000 to Bishan on 30 December 2001 at October 2001 and drew three bills for Rs.2,000, Rs.4,000 & Rs. 8,000 payable after two, three,12% p.a. The first and four months respectively. The first bill was and second bills were kept by Ashok with him till maturity. Heduly met on maturity endorsed the second bill in favour of hisbut the third bill was

dishonoured and the bank paid Rs.50 as noting charges. On 8 March 2002 Bishan paid Rs. 4,000 and noting charges in cash and accepted a new bill at two months after date for

the balance plus interest Rs.100. The new bill of both Ashok and was met on maturity by Bishan.You are Bishan and prepare required to give the journal entries in the books Bishans account in

Ashoks books and Ashoks account in Bishans books.

BILLS OF EXCHANGE

221

Books of Ashok Journal Date Particulars L.F. Debit Amount Rs. 14, 000 14,000 Credit Amount Rs.

2001 Oct. 30

Bishan Sales A/c (Sold goods to Bishan on Credit) Bills Receivable A/c Bishan (Received three acceptances from Bishan. First for Rs. 2,000 payable after two months, second for 4,000 payable after three months and the third for Rs. 8,000 payable after four months)

Dr.

Oct. 30

Dr.

14,000 14,000

Oct. 30

Dec. 3

2002 Jan. 2

Chetan A/c Dr. Bills Receivable A/c (Endorsed second bill in favour of creditor Chetan) Bank A/c Dr. Discount A/c Dr. Bills Receivable A/c (Third bill discounted at 12% p.a) Bank A/c Dr. Bills Receivable A/c (Bishan met his first acceptance on due date)

4,000 4,000

7,760 240 8,000 2,000 2,000

March 3

Bishan Bank A/c (Bishan dishonoured his third acceptance and bank paid Rs. 50 as noting charges

Dr.

8,050 8,050

March 8

Cash A/c Bishan (Cash Received from Bishan)

Dr.

4,050 4,050

March 8

Bishan Interest A/c (Interest charged from Bishan for the extended period

Dr.

100 100

March 8

May 12

Bills Receivable A/c Bishan (Received new acceptance from Bishan for 2 months) Bank A/c Bills Receivable Account

Dr.

4,100 4,100

Dr.

4,100 4,100

(Bishan met his new acceptance on maturity) Total 62,400 62,400

222

ACCOUNTANC Y

Bishans Account Dr. Particular s J. F. Cr.

Date 2001 Oct 30 2002 Mar 3 Mar 9

Particulars

J.F.

Amount Rs.

Date 2001

Amount Rs.

Sales Bank Interest

14,000 8,050 100

Oct 30 2002 Mar 9 Mar 9

Bills Receivable Cash Bills Receivable

14,000 4,050 4,100

22,150

22,150

Books of Bishan Journa l Date Particulars L.F. Debit Amoun t R s. 14,000 14,000 Credit Amount Rs.

2001 Oct 30

Purchases A/c Ashok A/c (Purchases goods on credit from Ashok)

Dr.

Oct 30

Ashok A/c Bills payable A/c (Accepted three drafts of Ashok, the first for Rs. 2,000 payable after 2 months, second for Rs. 4,000 payable after 3 months & 3rd for Rs. 8,000 payable after 4 months

Dr.

14,000 14,000

2002 Jan. 2

Bills payable A/c Bank A/c (Met first acceptance for Rs. 2,000

Dr.

2,000 2,000

in favour of Ashok) Feb 2 Bill Payable A/c Bank A/c (Met second acceptance for Rs. 4,000 in favour of Ashok on maturity) Balance c/f Dr. 4,000 4,000

34,000

34,000

BILLS OF EXCHANGE

223

Balance b/f Mar 3 Bill payable A/c Noting charges A/c Ashok (Third acceptance in favour of Ashok dishonoured and noting charges Rs. 50) Ashok Cash A/c (Paid to Ashok Rs. 4,000 plus noting charges) Interest A/c Ashok (Interest allowed to Ashok) Ashok Bills payable A/c (New draft of Ashok for two months accepted) Bills payable A/c Bank A/c (Met new acceptance for Rs. 4,100 in favour of Ashok on maturity) Total Dr. Dr.

34,000 8,000 50

34,000

8,050

Mar 8

Dr.

4,050 4,050

Mar 8

Dr.

100 100

Mar 8

Dr.

4,100 4,100

Mar 12

Dr.

4,100 4,100

54,400

54,400

Ashoks Account Dr. J.F . Cr.

Date 2001 Oct 30 2002 Mar 8

Particulars

J.F.

Amount Rs.

Date 2001

Particulars

Amount Rs.

Bills payable Cash A/c

14,000 4,050

Oct 30 2002 Mar 3

Purchases A/c Bills Payable Noting charges

14,000 8,000 50 100

Mar 8

Bills payable

4,100

Mar 8

Interest

22,150

22,150

224

ACCOUNTANCY

immediately endorsed in favour of Ajit and on 4 January Sunil receives three promissory notes from2000 the third bill is Anil, dated 1 January 2000 for 3 months. One discounted with the bill is for Rs. 3,000, the second is for Rs. 4,000 bank for Rs.4,700. and the third is for Rs.5,000. The second bill is Pass the entries in Sunils journal Illustration 12
Books of Sunil Journal

assuming (i) the bills are met on maturity, and (ii) they are dishonourned.

Date

Particulars

L.F.

Debit Amount Rs.

Credit Amount Rs.

2000 Jan 1

Bills Receivable A/c Anils A/c (Three promissory notes for Rs. 3,000, Rs. 4,000 and Rs. 5,000 received from Anil)

Dr.

12,000 12,000

Jan 1

Ajits A/c Dr. Bills Receivable A/c (The bill for Rs. 4,000 received from Anil, now endorsed in favour of Ajit Bank A/c Discount A/c Bills Receivable A/c (The bill for Rs. 5,000 discounted with the bank for Rs. 4,700, i.e. at a discount of Rs. 300) Dr. Dr.

4,000 4,000

Jan 4

4,700 300 5,000

(i) April 4

On maturity, suppose the bills are met: Cash / Bank A/c Bill Receivable A/c (Cash / Cheque received in respect of the bill for Rs. 3,000 held till maturity

Dr.

3,000 3,000

(ii) April 4

On maturity, suppose the bills are dishonoured: Anils A/c Dr. Bills Receivable A/c (The bill for Rs. 3,000 dishonoured by Anil Balance c/f

3,000 3,000

27,000

27,000

BILLS OF EXCHANGE

225

Balance b/f April 4 Anils A/c Ajits A/c (Dishonour of Anils promissory note for Rs.4,000 which was endorsed in favour of Ajit) Anils A/c Bank A/c (Dishonour of Anils promissory note for Rs. 5,000 which was discounted with bank) Total Dr.

27,000 4,000

27,000 4,000

April 4

Dr.

5,000 5,000

36,000

36,000

request that the bill Illustration 13 be renewed for a Aashirwad draws on Aakarshak a Bill of further period of 3 exchange for 3 months for Rs. 10,000 which months at 18 per cent Aakarshak accepts on 1st January 2000.per annum interest. Aashirward endorses the bill in favour of Aashirward pays the prateek. Before maturity Aakarshak approaches sum to Prateek on the Aashirwad with the due date and agrees to the proposal of Aakarshak. Pass journal entries in the Solution books of Aashirwad,
Book s of Aashi rwad Journal

assuming that the second bill is duly met.

Date

Particulars

L.F.

Debit Amount Rs.

Credit Amount Rs.

2000 Jan 1

Bills Receivable A/c Aakarshaks A/c (The Bill of exchange received from Aakarshak) Prateeks A/c Bills Receivable A/c (The bill of exchange received from Aakarshak, endorsed to Prateek) Balance c/f

Dr.

10,000 10,000

Jan 1

Dr.

10,000 10,000

20,000

20,000

226

ACCOUNTANC Y

Balance b/f Apr 4 Aakarshaks A/c Prateeks A/c (Cancellation of the bill of exchange received from Aakarshak now with Prateek) Prateeks A/c Bank A/c (Payment of the amount due to Prateek) Aakarshaks A/c Interest A/c (Interest due from Aakarshak on Rs. 10,000 for 3 months at 18% p.a.) Dr.

20,000 10,000

20,000

10,000

Apr 4

Dr.

10,000 10,000

Apr 4

Dr.

450 450

Apr 4

Bills Receivable A/c Dr. Aakarshaks A/c (The new bill recieved from Aakarshak for the amount due for him.) Bank A/c Bills Receivable A/c (The amount received from Aakarshak in respect of the renewed bill.) Total Dr.

10,450 10,450

July 7

10,450 10,450

61,350

61,350

Rs.2,000 in cash and Illustration 14 accepts a bill of Ankit owes Nikita a sum of Rs.6,000. On 1 exchange drawn on April,2000 Ankit gives a promissory note forhim for the balance the amount for 3 months to Nikita who gets ittogether with Rs.100 discounted with her bankers for Rs.5,760. On as interest. This bill the due date the bill is dishonoured, the bank of exchange is for 2 paid Rs.15 as noting charges. Ankit then pays months and on the

due date the bill is again dishonoured, Nikita paid Rs.15 as noting charges. Draft the journal entries to be passed in Nikitas books.

BILLS OF EXCHANGE

227

Solution Books of Nikita Journal Date Particulars L.F. Debit Amount Rs. 6,000 6,000 Credit Amount Rs.

2000 Apr

Bills Receivable A/c Ankits A/c (Ankits promissory note received in settlement of his account) Bank A/c Discount A/c Bills Receivable A/c (Ankits promissory note discounted for Rs. 5,760) Ankit A/c Bank A/c (The promissory note dishonoured by Ankit the amount of the bill and the noting charges recoverable from Ankit and payable to Bank) Cash A/c Ankits A/c (The amount received from Ankit) Ankits A/c Interest A/c (Interest due from Ankit for the second bill) Bills Receivable A/c Ankits A/c (Ankits acceptance for 2 months in settlement of amount due) Ankits A/c Bills Receivable A/c (The dishonour by Ankit of

Dr.

Apr 1

Dr.

5,760 240 6,000

July 4

Dr.

6,015 6,015

Jul 4

Dr.

2,000 2,000

Jul 4

Dr.

100 100

Jul 4

Dr.

4,115 4,115

Sep 7

Dr. his acceptance) Dr.

4,115 4,115 15 15

Sep 7

Ankits A/c Cash A/c (Payment of noting charges, recoverable from Ankit

Total

28,360

28,360

228

ACCOUNTANCY

another promissory note for Rs.4,000 at 2 Illustration 15 Mohit sends his promissory note for 3 monthsmonths. On the due Mohit to Rohit for Rs. 6,000 on May 1, 2000. Rohit date, approaches Rohit gets it discounted with his bankers. at 18 per again and asks for centper annum on 4 May. On the due date the renewal of the bill bill is dishonoured, the bank paying Rs.10 as noting charges. Rohit agrees to accept Rs. for a further period 2,170 in cash (Rs. 130 for noting charges and of 3 months. Rohit agrees to the request, interest) and provided Mohit pays

Rs.200 as interest in cash. This last bill is paid on maturity. Draft journal enteries in the books of Mohit and Rohit.

Solution Books of Mohit Journal

Date

Particulars

L.F.

Debit Amount Rs. 6,000

Credit Amount Rs.

2000 May 1

Rohits A/c Bills Payable A/c (The amount of the promissory note sent to Rohit) Bills payable A/c Noting Charges A/c Rohits A/c (The dishonour of the promissory note and Rs. 10 being payable as noting charges to Rohit Interest A/c Rohits A/c (Interest due to Rohit for part renewal of the promissory note) Rohits A/c Bills Payable A/c Cash A/c (Payment of Rs. 2,130 in cash and a new promissory note For Rs. 4,000 sent to Rohit to Settle his account) Bills Payable A/c Rohits A/c (Cancellation of the bill due today) Balance c/f

Dr.

6,000

Aug 4

Dr. Dr.

6,000 10 6,010

Aug 4

Dr.

120 120

Aug 4

Dr.

6,130 4,000 2,130

Oct 7

Dr.

4,000 4,000

22,260

22,260

BILLS OF EXCHANGE

229

Balance b/f Oct 7 Interest A/c Rohits A/c (The amount due as interest to Rohit on the renewed bill) Rohits A/c Cash A/c Bills Payable A/c (Payment to Rohit of Rs. 200 in cash and the promissory note sent to him) Dr.

22,260 200

22,260

200

Oct 7

Dr.

4,200 200 4,000

2001 Jan 10

Bills Payable A/c Dr. Cash A/c (Payment made to meet the bill due this day)

4,000 4,000

Total

30,660

30,660

Books of Rohit Journal Dr. Date Particulars L.F. Debit Amount Rs. 6,000 6,000 Cr. Credit Amount Rs.

2000 May 1

Bill Receivable A/c Mohits A/c (Mohits promissory note received this day)

Dr.

May 4

Banks A/c Dr. Discount A/c Dr. Bills Receivable A/c (The discounting of the promissory note by Mohit at 18% on Rs. 6,000 for 3 months) Mohits A/c Bank A/c (The dishonour of the promissory note by Mohit Rs. 10 being charged by bank for noting charges) Dr.

5,730 270 6,000

Aug 4

6,010 6,010

Aug 4

Mohits A/c Interest A/c (The amount agreed to be paid as interest by Mohit) Balance c/f

Dr.

120 120

18,130

18,130

230

ACCOUNTANC Y

Date

Particulars

L.F.

Debit Amount Rs. 18,130

Credit Amount Rs. 18,130

Balance Aug 4

b/f Dr. Dr.

Cash A/c Bill Receivable A/c Mohits A/c (Cash and promissory note received from Mohit for the amount due from him) Mohits A/c Bills Receivable A/c Cancellation of Mohits promissory note Mohits A/c Interest A/c (The amout due from Mohit as interest) Cash A/c Bills Receivable A/c Mohits A/c (Cash and promissory note received from Mohit) Cash / Bank /A/c Bills Receivable A/c (Mohit met his acceptance on maturity) Total

2,130 4,000 6,130

Oct 7

Dr.

4,000 4,000

Oct 7

Dr.

200 200

Oct 7

Dr. Dr.

200 4,000 4,200

2001 Jan 10

Dr.

4,000 4,000

36,660

36,660

Illustration 16 Journalize the following transactions in the books of J. Jaggi:

(1) Our acceptance to M. Madan for Rs.

3,000 retired before due date, rebate allowed Rs.45. (2) K. Kakus acceptance for Rs.4,000 renewed for a further period of 3 months, interest charged at 15 per cent. (3) Our acceptance to P. Swamy for

Rs.8,000 renewed for 3 months on the condition that Rs.2,000 is paid in cash immediately and the remaining balance to carry

out interest at 18 per cent.

(4) D. Dutts promissory note for Rs.7,000

(5) Our promissory

note in favour of A. Alam for Rs. 2,150 which we pay by cheque. Our promissory

which we had endorsed in favour of P. Mukerjee dishonoured. P. Mukerjee paid Rs.10 as noting charges. We pay P. Mukerjee by cheque and accept from D. Dutt another bill for the amount due plus (6) interest, Rs.315.

note for Rs.5,000 in favour of Patel settled by sending him Tannas acceptance for Rs.5,000

BILLS OF EXCHANGE

231

Solution Books of J. Jaggi Journal Date Particulars L.F. Debit Amount Rs. 3,000 2,955 45 Credit Amount Rs.

Bills Payable A/c Bank A/c Discount A/c (The amount paid and discount received on retirement of our acceptance before due date)

Dr.

K. Kakus A/c Dr. Bills receivable A/c (The Cancellation of K. Kakus acceptance in order to renew it) K. Kakus A/c Interest A/c (Interest due on renewal of bill for three months rate of interest being 15%) Dr.

4,000 4,000

150 150

Bills Receivable A/c Dr. K. Kakus A/c (K. Kakus acceptance for the amount due) Bills Payable A/c P. Swamys A/c (Cancellation of our acceptance to P. Swamy prior renewal) Interest A/c P. Swamy A/c (Interest due to P. Swamy for his readiness to accept a new bill for the amount due which after paying Rs 2,000 cash, will be Rs. 6,000) P. Swamys A/c Cash Bills Payable A/c (Settlement of P. Swamys account by paying him cash Rs. 2,000 and the balance by a bill of exchange) Balance c/f Dr.

4,150 4,150

8,000 8,000

Dr.

270 270

Dr

8,270 2,000 6,270

27,840

27,840

23 2

ACCOUNTANC Y

Balance b/f D. Dutts A/c P. Mukerjees A/c (Dishonour of D. Dutts acceptance which was sent to P. Mukerjee who claims another Rs. 10 for noting charges) P. Mukerjees A/c Bank A/c (Amount paid to P. Mukerjee) D. Dutts A/c Interest A/c (Interest due from D. Dutt for renewal of his acceptance) Bills Receivable A/c D.Dutts A/c (Acceptance received from D. Dutt) Bills Payable A/c Noting Charge A/c A. Alam A/c (A. Alam for dishonoured bill and noting charges) Bills Payable A/c Bills Receivable A/c (Tannas acceptance of Rs. 5,000 sent to Patel settlement of own acceptance to him for Rs. 5,000) Total Dr. Dr.

27,840 7,010

27,840

7,010

7,010 7,010

Dr.

315 315

Dr.

7,325 7,325

Dr. Dr.

2,500 10 2,510

Dr.

5,000 5,000

59,520

59,520

On 5 June 2000 Illustration: 17 C sent both the bills On 12 May 2000 C sold to D goods for Rs. to his bank for 36,470 and drew upon the latter two bills ofcollection on due exchange; One for Rs.16,470 at one month and the other for Rs.20,000 at three months. D accepted both the bills.

dates. The first bill was duly met. But due to some temporary financial difficulties, C failed to honour his acceptance for

Rs.20,000 on the due date and the bank had to that D would pay Rs.20 as noting charges. However, on 14 immediately pay August 2000 it was agreed between C and D Rs.8,020 in cash and

accept a new bill at three

233 BILLS OF EXCHANGE

months for Rs.12,480 which included interest for postponement of part payment of the dishonoured bill. C immediately sent the new acceptance to its bank for collection on due date.On 1October 2000 D approached

C offering Rs.12,240 for retirement of his acceptance. C acceded to the request. Pass journal entries for all the abovementioned transactions and prepare ledger accounts in the books of C.
Books of C Journal

Date

Particulars

2000 May 12 Ds A/c Sales A/c (Sales to D) Bills Receivable A/c Ds A/c (two acceptance received from D; one for Rs 16,470 at one month and the other for Rs. 20,000 at three months) Bills Sent for Collection A/c Bills Receivable A/c (Ds acceptance sent to bank for collection on due date)

May 12

Jun 5

2000 Jun 15

Bank A/c Bills sent for collection A/c (Ds Acceptance for Rs. 16,470 collected by bank on due date) D A/c Bills sent for collection A/c (Dishonour of Ds acceptance earlier sent to bank for collection; bank being credited for noting charges paid by it) Ds A/c Interest A/c (Interest agreed to be paid by D for postponement of part payment of the bill) Balance c/f

Aug 14

Aug 16

234

ACCOUNTANC Y

Balance b/f Aug 16 Bank A/c Bills Receivable A/c Ds A/c (Cash and new acceptance received from D in settlement of his account) Bill sent for collection A/c Interest A/c Bill Receivable A/c (Ds new acceptance sent to bank for collection on due date) Bank A/c Rebate A/c Bills sent for collection A/c (Retirement by D of his acceptance for Rs. 12,480 for rebate of Rs. 240) Total Dr. Dr.

1,46,380 8,020 12,480

1,46,380

20,500

Aug 19

Dr. Dr.

12,000 480 12,480

Oct 14

Dr. Dr.

12,000 480 12,480

1,91,840

1,91,840

Ds Account Dr. Amoun t Rs. Particula rs J. F. Cr.

Date 2000 May 12 Aug 14 Aug 14 Aug 16

Particulars

J.F.

Date 2000 May 12 Aug 16 Aug 16

Amount Rs.

Sales Bills Sent for Collection (Dishonour of Bill) Bank Interest

36,470 20,000

Bills Receivable Bank Bill Receivable

36,470 8,020 12,480

20

480

56,970

56,970

BILLS OF EXCHANGE

235

Bills Receivable Account Dr. J.F . Da te 20 00 June 5 Aug 16 J.F . Cr.

Date

Particulars

Amount Rs.

Particulars

Amount Rs.

2000 May12 May 16

Ds Ds

36,470 12,480

Bills sent for collection Bills sent for collection Interest

36,470 12,000 480 48,950

48,950

Bills sent for collection Dr. D at e 2000 Jun 5 Aug 14 Oct 1 Oct 1 Cr.

Date 2000 Jun 5 Aug 16

Particulars

J. F.

Amount Rs. 36,470 12,000

Particula rs

J.F.

Amount Rs. 16,470 20,000 12,240 240 48,950

Bills Receivable Bills Receivable

Bank Dc Bank Rebate

48,950

Terms Introduced in this Chapter

(1) (2) (3) (4) (5) (6)

Drawer: A person who makes or draws a bill. Drawee: A person on whom the bill is drawn for its acceptance by him. Payee: A person in whose favour a bill is Drawn. Bill Receivable: A bill is a bill receivable for a person who has to receive the payment on the due date. Bill Payable: A bill is a bill payable for one who has to pay it on the due date. Drawing of a Bill: When a creditor writes and signs an unconditional order on the debtor to make payment, the former is said to have drawn a bill.

(7) (8)

Acceptance of a Bill: When the drawee puts his signature on the draft received by him, he is said to have accepted the bill. Payment of a bill: When the amount of the bill is realized on the due date, it is said to have been paid off.

236

ACCOUNTANCY

SUMMARY WITH REFERENCE TO LEARNING OBJECTIVES

(b) Advantages A frame for relationship; certainty of terms and conditions; convenience for debtor; financing facility for creditor; conclusive proof; means of remittance; easy transferability.

1.

Bill of Exchange as an Instrument

A bill of exchange is a device by which the purchaser or debtor in a credit transaction is not required to make immediate payment but satisfies the seller or creditor by accepting in writing the liability to pay the amount due from him.

EXERCI SES Q. 1 Fill in the blanks: A bill of exchange is _______________________ instrument. a

2.

Meaning of Bill of Exchange and Promissory Note

A bill of exchange is a written acknowledgement of debt (1) given by one person to another, incorporating all the terms and conditions of payments.A promissory note is an (2) undertaking in writing given by the debtor to the creditor to pay the latter a certain sum of money in accordance (3) with the conditions stated therein.

A bill of exchange is drawn by the ___________upon his ____________. A promissory note is by_______________in favour ____________. of drawn his

3.

Difference between a Bill and a Note

(4)

(1)

A bill is prepared by the creditor and accepted by (5) the debtor; a note is prepared by the debtor. (2) There are three parties to a bill; there are only (6) two parties to a note. (c ) A bill requires acceptance to acquire financial status; a note in itself has financial status. (7)

There are ________________parties to a bill of exchange. There are ________________parties to a promissory note. drawer and _____________can be the same parties in case of a bill of exchange. drawer and ___________can not be the same parties in case of a promissory note. A bill of exchange _____________________. A promissory note require_____________. does requires not

Features and advantages of a bill

(8)

(1)

A bill is a written unconditional order; it is (9) signed by the creditor and accepted by the debtor; the amount of the bill is payable either on(10) demand or at a fixed or determinable future time; the amount is payable either to the bearer or a specified person or to the order of the latter.

According to the provision of Reserve Bank of India Act, a promissory note cannot be made payable to ___________________.

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(11) (12) (13) (14) (15)

of exchange Q.11 What is meant by renewal of a Meeting a bill of exchange by the acceptor before bill of exchange? Q.12 the date of its maturity is called______________. Give the Performa of a Bills of exchange in Indian language are called bills receivable book. as___________. Q.13 What is meant by The process of transferring the owners hip of the retirement of a bill of exchange? Q.14 Give the bill is called_______________. Performa of a bills payable _______________days of grace are added in the book. terms of the bill to calculate the date of Q.15 What is meant by insolvency? its________________.

Give the meaning of rebate. The act of non-payment of the amount of the bill on Q.16 its due presentation is called _________of the bill. Q.17 Give the Performa of a bill of exchange. (16) If the date of maturity of a bill is on holiday then Essay Type Questions the bill will mature on _____________day. between a bill of exchange and (17) If the date of maturity of a bill of exchange is (1) Distinguish a promissory note. declared as a holiday by the Government of India under the negotiable instruments act then the bill (2) Briefly explain the effects of dishonour and noting of a bill of exchange. will mature on _____________day. (3) Explain briefly the procedure of calculating the date of maturity of a bill of Short Answer Questions exchange? Q.2 Define a bill of exchange? Q.3 What is meant by a promissory note? Q.4 Give the meaning of negotiable instruments. Q.5 What is meant by maturity of a bill of exchange? Q.6 What is meant by dishonour of a bill of exchange? Q.7 Name the parties to a bill of exchange. Q.8 Name the parties to a promissory note. Q.9 What is meant by acceptance of a bill of exchange? Q.10 Give the meaning of Noting of a bill

(4) (5) (6) (7)

What is meant by due presentation of a bill of exchange? Explain briefly. Briefly explain the purpose and benefits of retiring a bill of exchange to the debtor and the creditor. Explain briefly the difference between dishonour of a bill of exchange and renewal of a bill of exchange. Describe briefly the purpose and advantages of maintaining of a bills receivable book. Briefly explain the benefits of maintaining a bills payable book.

(8)

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exchange drawn upon him by Jimmi. The bill of exchange was payable after 40 days. Five days Problems before the maturity of the bill, Jimmy sent the same Q.9 On 1.1.2002 Rao sold goods Rs. 10,000 to Reddy. to his bank for collection. The bank duly presented Half of the payment was made immediately and for the the bill to John on the due date and accordingly remaining half Rao drew a bill of exchange upon Reddy informed Jimmi. Pass the necessary Journal entries payable after 30 days. Reddy accepted the bill and in the books of John and Jimmi. Prepare John returned it to Rao. On the due date Rao presented the bill account in the books of Jimmi and Jimmi account in to Reddy and received the payment. the books of John. Journalize the above transactions in the books of Rao and Reddy. Prepare Reddys account in the books of Rao and Raos account in the books of Reddy. Q13 On 15 Jan 2002, Kartar Sold goods for Rs. Q. 10 On 1.1.2002, Shankar purchased goods from Parvati 30,000 to Bhagwan and drew upon him three bills for Rs. 8,000 and immediately drew a promissory note in of exchange of Rs. 10,000 each payable after one favour of Parvati payable after 3 months. On the date of month, two month, and three months respectively. maturity of the promissory note, the Government of India The first bill was retained by Kartar till its maturity. declared holiday under the Negotiable Instrument Act The second bill was endorsed by him in favour of 1881. Since, Parvati was unaware about the provision of his creditor Ratna and the third bill was discounted the Law regarding the date of maturity of the bill, she by him immediately @ 6% p.a. All the bills were handed over the bill to her lawyer, who duly presented the met by Bhgwan. Journalize the above transactions in bill and received the payment. The amount of the bill was the books of Kartar and Bhagwan. Also prepare handed over by the lawyer to Parvati immediately. Pass ledger account in books of Kartar and Bhagwan. the necessary Journal entries in the books of Parvati and Shankar. Q. 14 On 4 Jan 2002 Arun sold goods for Rs. 30,000 to Sunil. 50% of the payment was made Q. 11 Vishal sold goods for Rs. 7,000 to Manju on 5 Jan immediately by Sunil on which Arun allowed a cash 2002 and drew upon her a bill of exchange payable after 2 discount of 2%. For the balance Sunil drew a months. Manju accepted Vishals draft and handed over promissory note in favour of Arun payable after 20 the same to Vishal after acceptance. Vishal immediately days. Since, the date of maturity of bill was a public discounted the bill with his bank @12% p.a. On the due holiday, Arun presented the bill on a day, as per the date Manju met her acceptance. Journalize the above provisions of Negotiable Instrument Act which was transactions in the books of Vishal and Manju. met by Sunil. State the date on which the bill was presented Q. 12 On 1 Feb 2002, John purchased goods for Rs.15,000 from Jimmi. He immediately made a payment of Rs. 5,000 by Arun for payment and Journalize the above by cheque and for the balance accepted the bill of transaction in the books of Arun and Sunil.

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p.a. The promissory note drawn on 28.1.2.2001 was endorsed by Bansal Traders in favour of their 17. 15 Darshan sold goods for Rs. 40,000 to Varun creditor dream soaps in full settlement of a purchase on 8.1.2002 and drew upon him a bill of exchange payable amounting to Rs. 1,900. On 25.1.2002 Bansal after two months. Varun accepted the bill and returned the Traders sent the promissory note drawn on same to Darshan. On the due date the bill was met by 31.12.2001 to their bank for collection. All the Varun. Pass the necessary Journal entries in the books of promissory notes were met by Mohan Traders. Darshan and Varun in the following circumstances. Pass the necessary journal entries for the above transactions in the books of Bansal Traders and 1 When the bill was retained by Darshan till the Mohan Traders and prepare Mohan Traders account date of its maturity. in the books of Bansal Traders and Bansal Traders 2 When Darshan immediately discounted the bill account in the books of Mohan Traders. @ 6% p.a. with his bank. 3 When the bill was endorsed immediately by Q.17 Narayanan purchased goods Rs. 25,000 from Ravinderan on 1.2.2002. Ravinderan drew upon Darshan in favour of his creditor Suresh. Narayanan a bill of exchange for the same amount payable after 30 days. On the due date Narayanan 4 When three days before its maturity, the bill was dishonoured his acceptance. sent by Darshan to his bank for collection . Pass the necessary journal entries in the books of Ravinderan and Narayanan in following cases. 17. 16 Bansal Traders allow a trade discount of 10% on the list price of the goods purchased from them. Mohan 1 When the bill was retained by Ravinderan with him till the date of its maturity. traders, who runs a retail shop made the following purchases from Bansal Traders. 2 When the bill was discounted by Ravinderan immediately with his bank @ 6% p.a. Amou Date nt 21.12.2001. 1,000 3 When the bill was endorsed of his creditor 26.1.2.2001 1,200 Ganeshan. 28.1.2.2001 2,000 4 When the bill was sent by Ravinderan to 31.12.2001 5,000 his bank for collection a few days before it maturity. For all the purchases Mohan Traders drew promissory notes in favour of Bansal Traders payable after 18 Ravi sold goods for Rs. 40,000 to 30 days. The promissory note for the sale of 21.12.200117. Suders han on Feb 13, 2002. He drew four bills of was retained by Bansal Traders with them till the date of exchanges upon Sudershan. The first bill was for Rs. its maturity. The promissory note drawn on 26.12.2001 was discounted by Bansal Traders from their bank at 12% 5,000 payable after

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5,200. The second bill was discounted by Raghu @ one month. The second bill was for Rs. 10,000 payable 6% p.a. and the third bill was retained by Raghu after 40 days; the third bill was for Rs. 12,000 payable with him till the date of maturity. Devendra after three months and fourth bill was for the balance dishonoured the bill on maturity and the bank paid amount payable after 19 days. Sudershan accepted all the Rs. 30 as noting charges. The second bill was also bills and returned the same to Ravi. Ravi discounted the dishonoured on maturity and the bank paid Rs. 50 as first bill with his bank at 6% p.a. He endorsed the second noting charges. Four days before the maturity of the bill to his creditor Mustaq for the full settlement of a debt third bill Raghu sent the same for collection to his of rs. 10,200. The third bill was kept by Ravi with him till bank. The third bill was also dishonoured by the date of maturity. Five days before the maturity of the Devendra and the bank paid Rs. 200 as noting fourth bill, Ravi sent the bill to his bank for collection. All charges. Five days after the dishonour of the third the four bills was dishonoured by Sudershan on maturity. bill Devendra paid the entire amount due to Raghu Sudershan settled Ravis claim in cash three days after the along with interest Rs.1,000 for this purpose dishonour of each bill along with interest @ 12% p.a. for Devendra obtained a short term loan from his bank. the terms of the bills. You are requested to pass the necessary journal entries in the books of Raghu, Devendra and Dewan You are requested to pass the necessary journal and prepare Devendras account in Raghus books entries in the books of Ravi, Sudershan, Mustaq and bank and Raghus account in Devendras account. for the above transaction. Also prepare Sudershan account and Mustaq account Q.21. Vimal purchased goods Rs. 25,000 from in the books of Ravi. Kamal on 15.1.2.2001 and accepted a bill of Q19 On I Jan Neha sold goods for Rs. 20,000 to Muskan exchange drawn upon him by kamal payable after and drew upon her a bill of exchange payable after two two months. On the date of the maturity the bill was months. One month before the maturity of the bill Muskan duly presented for payment. Vimal dishounoured the approached Neha to accept the payment against the bill at bill. a rebate @ 12% p.a. Neha agreed to the request of Muskan Pass the necessary journal entries in the books and Muskan retired the bill under the agreed rate of rebate. of Kamal and Vimal when. Journalize the above transactions in the books of Neha and Muskan. Q 20 On 15 Jan 2002 Raghu sold goods worth Rs. 35,000 to Devendra and drew upon the latter three bills of exchanges. The first bill was for Rs. 5,000 payable after one month, the second bill was for Rs.10,000 payable after two months and the third bill was for Rs. 20,000 payable after three months. Raghu endorsed the first bill in favour of his creditor Dewan in full settlement of a debt of Rs.

1 2 3 4

The bill was retained by Kamal till the date of its maturity. The bill was immediately discounted by Kamal with his bank @ 6% p.a. The bill was endorsed by Kamal in favour of his creditor Sharad. A five days before its maturity the bill was sent by Kamal to his bank for collections.

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Q. 22 Abdula sold goods to Tahir on 17.1.2002 for Rs. Pass the necessary journal entries is the bank of 18,000. He drew a bill of exchange for the same amount on Tahir for 45 days. On the same date which Tahir Sharma, Gupta and Verma for the above transaction accepted the bill and returned to Abdulla. On the due date and prepare Vermas and Guptas account in the Abdulla presented the bill to Tahir which was books of Sharma. Sharmas account in the books of dishonoured. Abdulla paid Rs. 40 as noting charges. Five Verma. And also Sharmas account in the books of days after the dishonour of his acceptance Tahir settled his Gupta. debt by making a payment of Rs.18,700 including interest and noting charges. 17. 25 Lilly sold goods to Mathew on 1.3.2002 for Rs. 12,000 and drew upon Mathew a Pass the necessary journal entries in the books of bill of exchange for the same amount payable after Abdulla and Tahir . Also prepare Tahirs account in the two months. Lilly immediately discounted the bill books of Abdulla and Abdullas account in the books of with her bank at 9% p.a. The maturity date of the Tahir. bill was a non business day (holiday), therefore, Lilly had to present the bill as per the provisions of Q 23 Asha sold goods worth Rs.19,000 to Nisha on 2 the Indian Instruments Act 1881.The bill was March 2002. Rs. 4,000 were paid by Nisha immediately dishonoured by Mathew and Lilly paid Rs.45 as and for the balance she accepted a bill of exchange drawn noting charges. Mathew settled the claim of Lilly upon her by Asha payable after three months. Asha five days after the dishonour of the bill by a cheque, discounted the bill immediately with her bank. On the due which include interest @ 12% for the term of the date Nisha dishonoured the bill and the bank paid Rs. 30 bill. as noting charges. Journalize the above transactions in the books of Lilly and Mathew and prepare Mathews account Pass the necessary journal entries in the books of Asha and Nisha. in the books of Lillys and Liilys account in the books of Mathew. Q 24 On 2 Feb 2002, Verma purchased from Sharma goods for Rs.17,500. Verma paid Rs.2,500 immediately17. 26 Kapil purchased goods for Rs. 21,000 and for the balance gave a promissory note to Sharmafrom Gourav on 1.2.2002 and accepted a bill of payable after 60 days. Sharma immediately endorsed the exchange drawn by Gourav for the same amount. promissory note in favour of his creditor. Gupta for the The bill was payable after one month. On 25.2.2002 full settlement of a debt of Rs. 15,400. On the due date of Gourav sent the bill to his bank for collection. The the bill Gupta presented the bill to Verma which the latter bill was duly presented by the bank. Kapil dishonoured and Gupta paid Rs. 5,000 noting charges. On dishonoured the bill and the bank paid Rs. 100 as the same date Gupta informed Sharma about the dishonour noting charges. of the bill. Sharma settled his debt to Gupta by cheque for Rs. 15,500 which. Include noting charges and interest. Pass the necessary journal entries for the above Verma settled Sharmas claim by cheque for the same transactions in the books of Kapil and Gourav. amount.

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17.

27 On 14.2.2002 Rashmi sold goods Rs. 7,500 to Alka. Alka paid Rs. 500 in cash and for the bank Q 29. On 1 Jan 2002 Vibha sold goods worth Rs. balance accepted a bill of exchange drawn upon her by 18,000 to Sudha and drew upon the latter a bill of Rashmi payable after two months. On 10.4.2002 Alka exchange for the same amount payable after two approached Rashmi to cancel the bill since she was short months. Sudha accepted Vibhas draft returned the of funds. She further requested Rashmi to accept Rs. 2,000 same to Vibha after acceptance. Vibha endorsed the in cash and draw a new bill for the balance including bill immediately in favour of her creditor Geeta. interest Rs. 500. Rashmi accepted Alkas request and drew Five days before the maturity of the bill Sudha a new bill for the amount due payable after 2 months. The requested Vibha to cancel the bill since she was bill was accepted by Alka. The new bill was duly met by short of funds. She further requested to draw a new Alka on maturity. bill upon her including interest of Rs. 200. Vibha accepted Sudhas request. Vibha took the bill from Geeta by making the payment to her in cash and Pass the necessary journal entries in the books of cancelled the same. Then she drew the new bill Rashmi and Alka and prepared Alkas account in the upon Sudha as agreed. The new bill was payable books of Rashmis and Rashmis account in the books of after one month. The new bill was duly met by Alkas. Sudha on maturity. Pass the necessary journal entries in the books of Vibha. 28. Nikhil sold goods for Rs. 23,000 to Akhil on 1.12.2001. He drew upon Akhil a bill of exchange for the Q. 30 On 1.1.2002 Adhikari sold goods Rs. 37,000 same amount payable after 2 months. Akhil accepted the to Bhandari. On the same day he drew upon bill and sent it back to Nikhil. Nikhil discounted the bill Bhandari a bill of exchange payable after two immediately with his bank @ 12% p.a. On the due date months. A week before the maturity of the bill Akhil dishonoured the bill of exchange and the bank paid Bhandari requested Adhikari to cancel the old bill Rs. 100 as noting charges. Akhil requested Nikhil to draw and draw upon him a new bill including interest of a new bill upon him with interest @ 10% p.a. which Rs.1,500. Adhikari agreed to Bhandaris request and agreed. The new bill was payable after two months a week cancelled the old bill. Adhikari drew a new bill with before the maturity of the second bill Akhil requested interest Rs. 1,500 payable after one month. The bill Nikhil to cancel the second bill. He further requested to was duly accepted by Bhandari.On the maturity of accept Rs. 10,000 in cash immediately and draw a third the second bill Bhandari became insolvent and a bill upon him including interest of Rs. 500. Nikhil agreed dividend of 50 paise in a rupee was received from to Akhils request. The third bill was payable after one his estate. month. Akhil met the third bill on its maturity. Pass the Pass the necessary journal entries in the books necessary journal entries in the books of Nikhil and Akhil of Adhikari and Bhandari account and prepare and also prepare Akhils account in the books of Nikhil Bhandari account in the books of Adhikari and and Nikhils account in the books of Akhil. Adhikari account in the books of Bhandari.

17.

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17.

31 On 12.10.2001 Arun sold goods Rs. 50,000 to Kapil for which the latter accepted four bills of Rs. 12,500 each. Payable after one month, 1.5 months, 2 months and 3 months respectively. The second bill was sent for collection. The third bill was endorsed in favour of Vishal and the fourth bill was discounted by Arun with his bank @ 12% per annum. The first bill was met on the due date. As regards the second bill, Kapil approached Arun on 25 November 2001, paid him Rs. 2,500 in cash and requested him to draw a new bill for the balance together with interest @ 12% per annum. The term of the new bill was one month and it was duly paid on maturity. The third bill was also duly met by Kapil. On maturity on 15.1.2002 Kapil was disclosed insolvent and only 50 paise in a rupee were recovered from his estate.

on maturity and we paidrs. 120 as noting charges.

(7)

We retired on acceptane Rs.7,000 in favour of Pramod one month before maturity under a rebate of 12% per annum. Arun acceptance in our favour Rs. 9,000 endorsed in favour Mahender was dishonoured by Mahinder and he paid Rs. 200 as noting charges. Arun settled his debt by paying a cheque for the amount due including interest Rs. 500 Neha acceptance in our favour for Rs. 8,000. She was remembered for a further period of two months. Neha agreed to pay interest Rs. 500 in cash. On his becoming insolvent Vishal could not fully meet an acceptance of Rs.12,000 and a final dividend of 60 paise in a rupee was received from his estate.

(8)

(9)

Pass necessary journal entries in the books of Aurn and Kapil and prepare Kapils account in Arun ledger and Aruns account in Kapil ledger.

(10)

17.

32 Here under are the following transactions in the books of Radhe Shyam.

(1) (2) (3] (4] (5)

(6]

Raj Kumar acceptance in our favour Rs. 5,000 was duly met on maturity. 17. 34 Sukumari sold goods for Rs. 21,000 to Our acceptance Rs. 7,000 in favour of Rs. Jayant on 1.1.2002 and drew upon Jayant a bill of exchange payable after one month. On 29 Jan 2002 4,500 was duly met on maturity. Jayant requested. Sukumari to cancel the bill drawn Paramjeet acceptance in favour of Jaipal Rs. on 1.1.2002. He further requested her to accept Rs. 3,000 endorsed in our favour was duly met on 7,000 in cash which included Rs. 2,000 for interest maturity. and draw a new bill for the balance payable after Our acceptance in favour of L.Kumar two months. This bill was endorsed by Sukumari in endorsed in favour of Kiran Rs. favour of her creditor Bhagwati. Bhagwati duly 12,000 was duly met on maturity presented the bill to Jayant on its maturity and Ashoks acceptance for Rs. 3,800 in our favourwhich was dishonored Bhagwati paid Rs.100 as noting charges. Jayant again requested Sukumari to discounted with the bank was dishonoured and the bank paid Rs. 50 as accept Rs. 2,000 in cash and draw upon him another bill of exchange payable after one month including noting charges. Gouravs acceptance for Rs. 5,500 in favour ofinterest for Rs. 500. Sukumari accepted Jayants Varun. Endorsed in our favour was dishonoredrequest and drew the third bill which was accepted by Jayant. On the

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Anils books and Anils account in Bijoys books. maturity of the new bill, Jayant became insolvent and a 17. 36 Following was the position of debtor claim of 60 paise in a rupee was received from him. and creditor of Gautam as on 1.1.2002. Journalize the above transaction in the books of Sukumari and Jayant and prepare Jayants account in the Debtors book of Sukumari and Sukumari account in the Jayant Rs. ledger. Babu 5,000 Chanderkala 8,000 17. 35 On 15 April 2001 Anil sold goods to Bijoy Kiran 13,500 for Rs. 30,000. Bijoy paid Rs.30,000 in cash and accepted Anita 14,000 three bills of exchange for the remaining amount. The first Anju bill was fro Rs. 7,000 payable after one month the second Sheiba bill was for Rs. 8,000 payable after two months and the Manju third bill was for Rs. 9,000 payable after three months. The following transactions took place in the month of Jan 2002: On 20 April 2001, Anil endorsed the first bill to his creditor Cristopher in final settlement of his account of Jan 2 Rs.7,200. He discounted the second bill with his bank at a Drew on Babu at two months after date at full discount of Rs. 100. Anil retained the third bill with his till settlement Rs. 4,800. Babu accepted the bill and the date of its maturity. returned it on 5.1.2002. The first bill was met on maturity. The second bill Jan 4 was dishonoured on its due presentation by cristopher and Babus bill discounted for Rs. 4,750. cristopher paid Rs. 100 as noting charges. Anil charged Rs. 200 for interest and drew upon Bijoy a fourth bill for Jan 8 the amount due payable after three months. Bijoy accepted Chanderkala sent a promissory note for Rs. 8,000 payable three months after date. it and returned it to Anil. The third bill was also met on maturity but before the due date of the fourth bill Bijoy Jan 10 become insolvent and only 40 recovered from him. Promissory note received from Chanderkala discounted for Rs. 7,900. Give journal entries to record the above transaction in the bill of Anil and Bijoy and prepare Bijoys account in

Creditors Rs. 5,000 12,000 6,000

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Jan 12 Accepted Sheiba Draft for the amount due payable two months after date. Jan 22 Anita sent his promissory note payable after two months. Jan 23 Anitas promissory note endorsed in favour of Manju. Jan 25 Accepted Anjus Draft payable after three months. Jan 29 Kiran sent Rs. 2,000 in cash and a promissory note for the balance payable after three months. Record the above transactions in the proper subsidiary books.

Check-list of key letters/words ANSWE RS

(1) (2) (3) (4) (5) (6) (7) (8) (9) (10) (11) (12) (13) (14) (15) (16) (17)

Negotiable Drawer, Drawee Maker, Payee Three Two Payee Payee Acceptance Acceptance Bearer Returning of a bill Hundi Endorsement 3, Maturity Dishonour Preceding working day Next working day