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CBSE Guess > Papers > Important Questions > Class XI > 2011 > Accountancy > Accountancy By Mr. Kailash Chandra Gururani

CBSE CLASS XI

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Bill Of Exchange

According to Indian Negotiable Instrument Act, A Bill of exchange is an instrument in writing 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 certain person or to the bearer of the instrument.

Features: Important features of Bill of exchange are as follows –
(a) It is an unconditional order to pay the specified amount on a specific date.
(b) It must be accepted and duly signed by the drawee.
(c) It is an order to pay specified amount to the payee on a specified date.
(d) The Payment has to done to the drawer or endorsee(if endorsed by the drawer in favour or a third party) or bank (if discounted with the bank).

Parties to the Bill of Exchange:
There are three parties involved in the Bill of Exchange –
(a) Drawer
(b) Drawee
(c) Payee

Drawer: Drawer is the person who draws the bill. Drawer must be the creditor or lender of money. Drawer means the person who has to realize the payment.
Drawee: Drawee is the person who has to make the payment on the specified date to the holder of the instrument.
Payee: Payee is the person who receives the payment. It may be the drawer (if the bill is retained till maturity), bank (if the bill is discounted with the bank by the drawee) or a third party (if the bill is endorsed in favour of third party.
Grace Period: In order to calculate the maturity period of the Bill of Exchange 3 days grace period should be added every time. If on the due date there is public holiday, the actual due date will be one day earlier. If there is a holiday under Negotiable Instrument Act 1881 or a sudden holiday which was not known earlier, then actual due date will be 1 day after.

Promissory Note:
A Promissory Note is an instrument in writing containing an unconditional undertaking signed by the maker to pay a certain sum of money only to or to the order of a certain person or to the bearer of the instrument.

Features:
(a) It is a promise to pay certain amount on a specified date.
(b) It is a written and signed document.
(c) Payment may be made on demand or after the expiry of certain period.
(d) It is conditional promise to make the payment.

Parties to the Promissory Note: There are two parties involved in the Promissory
Note –
(a) Drawer or Maker
(b) Payee

Drawer or Maker: Drawer or Maker is the debtor, who promises to make the payment. It must be signed by its maker.
Payee: Payee the person, who receives the payment. i.e. the person who holds the Promissory Note or who is addressed in the document will be the Payee.
Accounting Treatment When the bill is drawn for the sale of goods –

The bill was retained till the maturity of the bill: n
(A) In the books of seller:
(a) When the goods sold

Buyer’s A/c Dr.                                                                                             xxx
To Sales A/c                                                                                                 xxx
(Being goods sold on credit)

(b) If a part of amount is received immediately by cash or cheque

Cash A/c or Bank A/c Dr.                                                                            xxx
To Buyer’s A/c                                                                                              xxx
(Being payment received by cash or bank)

(c) When Bill is Accepted

Bills Receivable A/c Dr. .                                                                    .      xxx
To Buyer’s A/c                                                                                             xxx
(Being the acceptance of Bill is received)

(d) When Bill is honoured or received the money on due date

Cash A/c or Bank A/c Dr.                                                                          xxx
To Bills Receivable A/c                                                                             xxx
(Being the payment of bill is received)

(B) In the books of Buyer:
(a) When the goods bought

  Purchase A/c Dr.                                                                                      xxx
  To Seller’s A/c                                                                                          xxx
  (Being goods bought on credit)

(b) If a part of amount is paid immediately by cash or cheque

    Seller’s A/c Dr.                                                                                         xxx
    To Cash A/c or Bank A/c                                                                        xxx
    (Being payment made by cash or bank)

(c) When Bill is Accepted

  Seller’s A/c Dr.                                                                                           xxx
  To Bills Payable A/c                                                                                  xxx
  (Being the acceptance of Bill is given)

(d) When Bill is honoured or received the money on due date

  Bills Payable A/c Dr.                                                                                 xxx
  To Cash A/c or Bank A/c                                                                          xxx
  (Being the payment of bill is made)

The bill was discounted immediately with the bank
(A) In the books of seller:
Entry (a), (b) and (c) will be similar.
When the bill is discounted :

Bank A/c Dr.                                                                                                 xxx
Discount A/c Dr.                                                                                          xxx
To Bills Receivable A/c                                                                              xxx
(Being Bill discounted immediately with the Bank)

Note : The discount will be calculated on the given percentage for the tenure of the bill. e.g. if the bill amount is Rs. 5000 and tenure is 3 months, if it is discounted at 10% then discount will be

At the time of maturity:
   There will be no entry

(B) In the books of Buyer:
      All entries will be similar

The bill was endorsed in favour of a creditor or third party
(A) In the books of seller:

Entry (a), (b) and (c) will be similar.
When the bill is endorsed :

Third Party or Creditor’s A/c Dr.                                                                xxx
To Bills Receivable A/c                                                                              xxx
(Being Bill is endorsed in favour of creditor or third party)

At the time of maturity:
      There will be no entry

(B) In the books of Buyer:
      All entries will be similar

The bill was sent a few days before to bank for collection
(A) In the books of seller:
Entry (a), (b) and (c) will be similar.
When the bill is sent to bank for collection :

  Bills sent for collection A/c Dr.                                                                 xxx
  To Bills Receivable A/c                                                                             xxx
  (Being Bill is sent to bank for collection)

When the payment received

Bank A/c Dr.                                                                                                  xxx
To Bills sent for collection A/c                                                                   xxx
(Being payment for bill is received)

(B) In the books of Buyer:
      All entries will be similar

 

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Submitted By Mr. Kailash Chandra Gururani
Email Id :kailash.gururani@rediffmail.com