Accounting for Bill for Exchange and Promissory Notes

1.0 PROMISSORY NOTE 1.1 Meaning of Promissory Note A Promissory Note is an unconditional undertaking in writing given by the debtor to the creditor to pay on demand or at a fixed or determinable future time, a certain sum of money to or to the order of a specified person or to the bearer. According to Sec.4 of the Negotiable Instruments Act 1881, A promissory note is an instrument in writing (not being a bank note or a currency note) containing an unconditional undertaking, signed by the maker to pay a certain sum of money only to or to the order of a certain person or to the bearer of the instrument. An analysis of the definitions given above highlights the following features of a Promissory Note. (a) A Promissory Note is a written unconditional promise. (b) It is drawn and signed by the person to whom credit is granted or by the debtor. (c) It is addressed to the person who grants credit or to the creditor. (d) The amount is payable either or demand or at a fixed or determinable future time. (e) The amount is payable either to the bearer of the instrument or to a specified person or to the order of such a person. (f) The amount payable is a certain sum of money. 1.2 Two parties to a Promissory Note. There are two parties to a Promissory Note as under: (a) The Maker ____ the person who makes or draws the Promissory Note is called the maker. (b) The Payee ___ the person to whom the payment is to be made, is called the payee.

20.2 Fundamentals of Accounting for Common Proficiency Test (CPT) 1.3 Specimen of a Promissory Note The usual form of a Promissory Note is given below: Bharat Tulsian sells good to Rahul for Rs.50,000 to be paid 3 months after date. If Rahul Tulsian promises to pay in writing, this promise will be Promissory Note. 1.4 Accounting Treatment A Promissory Note is treated as a Bill Receivable by one who is entitled to receive the amount of the note. A Promissory Note is treated as a bill payable by one who is liable to pay the amount of the note. The accounting entries relating to Promissory Note transactions are passed in the same manner as in case of a bill of exchange. 2.0 BILL OF EXCHANGE 2.1 Meaning of a Bill of Exchange A bill of exchange is an unconditional order in writing given by the creditor to the debtor to pay on demand, or at a fixed or determinable future time, a certain sum of money to or to the order of a specified person or to the bearer. Accounting to Sec.5 of the Negotiable Instrument Act 1881, A bill of exchange is 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. (a) A bill of exchange is a written unconditional order. (b) It is drawn and signed by the person who grants credit or by the creditor. (c) It is addressed to the person to whom credit is granted or to the debtor. (d) The amount is payable either on demand or at a fixed or determinable future time. (e) The amount is payable either to the bearer of the instrument or to a specified person or to the order of such a person. (f) The amount payable is a certain sum of money. 2.2 Three Parties to a Bill of Exchange.

There are three parties to a Bill of Exchange as under: (a) Drawer The person who draws the bill is called the drawer. In other words, he is the person who grants credit. (b) Drawee The person on whom the bill is drawn for its acceptance by him is called the drawee. In other words, he is the person to whom the credit is granted. (c) Payee The person is whose favour the bill is drawn is called the payee. The payee may be a third party or the drawer himself. 2.4 Advantage of a Bill of Exchange. The advantages of a bill of exchange are as under: 1. 2. 3. 4. Evidence of Indebtedness: It acts as an evidence of indebtedness since it is a written and signed acknowledgement of debt. Source of Finance: It acts as a source of finance since it can be discounted before the due date. Means of Remittance: It acts as a means of remittance since money can be transferred easily from one place to another by means of a bill. Device of Discharging a Debt: It acts as a device of discharging a debt since it is a negotiable instrument. 3.0 DISTINCTION BETWEEN A BILL OF EXCHANGE AND A PROMISSORY NOTE A bill of exchange can be distinguished from a Promissory Note as follows: Basis of Distinction 1. No. of Parties Bill of Exchange There are three parties drawer, drawee and payee. Promissory Note There are two parties maker and payee.

2. Promise/order

It contains an unconditional It contains an unconditional order given by a creditor to a promise given by a debtor to debtor. a creditor. The liability of the drawer is The liability of the maker s second and conditional. primary and absolute.

3. Nature of Liability

4. Acceptance

It requires an acceptance to It does not require any become a valuable instrument. acceptance since it is a valuable instrument right from the beginning. The drawer and payee may be The maker and payee cannot the same person. be the same person. It can be payable to the bearer. It can not be payable to It cannot be drawn as payable bearer. to bearer on demand. It requires the protesting for It does not dishonour. protesting. require any

5. Same identity of payeor and payee 6. Payable to bearer

7. Protest for Dishonour 8. Notice of Dishonour

Notice of dishonour must be Such notice is not required to given to all persons (including be given to the maker. drawer) liable to pay.

4.0 TERM OF A BILL. The term of a bill of exchange may be of any duration. Usually the term does not exceed 90 days from the date of the bill. When a bill is drawn after sight, the term of the bill begins to run from the date of sighting, i.e., when the bill is accepted. When a bill is drawn after date, the term of the bill begins to run from the date of drawing the bill. 5.0 DUE DATE OF A BILL The date on which the term of the bill expires is called as Due Date of the bill. 6.0 DAYS OF GRACE Every instrument payable otherwise than on demand is entitled to three days of grace.

7.0 DATE OF MATURITY OF BILL The date which comes after adding three days to the due date of a bill, is called the date of maturity. 8.0 BILL AT SIGHT (INSTRUMENTS PAYABLE ON DEMAND) Bill at Sight (or Instruments payable on demand) means the instruments in which no time for payment is mentioned. A cheque is always payable on demand. A Promissory Note or bill of exchange is payable on demand. (a) when no time for payment is specified, or (b) when it is expressed to be payable on demand, or at sight or on presentment. Notes: (i) (ii) At sight and presentment means on demand. An instrument payable on demand may be presented for payment at anytime. Specimen____ (i) (ii) (iii) I promise to pay B Rs.500. I promise to pay B Rs.500 on demand. Pay B Rs.500 at sight.

(iv) Pay B Rs.500 on presentment. 9.0 BILL AFTER DATE (OR TIME INSTRUMENT) Bill after date (or Time Instrument) means the instrument in which time for payment is mentioned. A Promissory Note or bill of exchange is a time instrument when it is expressed to be payable ____ (a) (b) (c) (d) (i) after a specified period. on a specific day after sight on the happening of event which is certain to happen. The expression after sight means____

Notes:

(a) in a Promissory Note, after presentment for sight (b) in a bill of exchange, after acceptance or noting for nonacceptance or protest for non-acceptance. (ii) A cheque cannot be a time instrument because the cheque is always payable on demand. Specimen____ (v) I promise to pay B Rs.500 after 3 months. (vi) I promise to pay Rs.500 on 1st Jan., 2003. (vii) I promise to pay B Rs.500 after sight. (viii) I promise to pay B Rs.500 after Cs death. 10.0 HOW TO CALCULATE DUE DATE OF A BILL The due date of each bill is calculated as follows: Case
a) When the bill is made payable on a specific date. (b) When the bill is made payable at a stated number of months(s) after date.

Due Date
(a) That specific date will be the due date. (b) That date on which the term of the bill shall expire will be the due date. Note: The term shall expire on that day of the month which corresponds with the day on which the bill is dated. If the month in which the period terminates has no corresponding day, the period shall be deemed to expire on the last day of such a month. (c) That date which comes after adding stated number of days. (d) The preceding business day will be the due date. (e) The next following day will be the due date.

(c)

When the bill is made payable at a stated number of days after date.

(d) When the due date is a public holiday. (e) When the due date is an emergency/unforeseen holiday.

Notes: (i) The term of a Bill after sight commences from the date of acceptance of the bill whereas the term of a Bill after date of drawing a bill commences from the date of drawing of bill. (ii) Public Holidays include all Sundays, 26 th Jan. (Republic Day), 15th Aug. (Independence Day), 30th Sept. (Bank Holiday) and 1 st April, (Bank Holiday). 11.0 HOW TO CALCULATE DATE OF MATURITY IN CASE OF TIME BILLS In case of time or tenor bills, three days (called days of grace) are added to the due date to arrive at the date of maturity. ILLUSTRATION 1 Find out the date of maturity of the following Bills Receivable: Bill No. A-1 A-2 A-3 A-4 A-5 A-6 A-7 A-8 A-9 A-10 Date of Drawing 31.01.1999 29.01.1999 29.01.1999 12.07.1999 27.06.1999 28.09.1999 23.12.1999 02.01.2000 05.01.2000 10.01.2000 Date of Acceptance 02.02.99 03.02.99 02.02.99 14.07.99 28.06.99 01.10.99 24.12.1999 03.01.2000 06.01.2000 11.01.2000 Payable 1 month after date 30 days after date 2 months after date 1 month after date 3 months after date 2 months after sight 1 month On demand At sight On presentment

Drawer demanded the amount of last three bills on 24 th Jan., 2000. Notes: (i) (ii) Three days of grace have been considered in case of Bills after date and Bills after sight, to assertion the date of maturity. The term of a Bill after sight commences from date of acceptance.

12.0 DRAWING OF BILL (TECHNICALLY A DRAFT)

When a creditor writes and signs an unconditional order requiring the debtor to pay a certain sum of money in accordance with the terms and conditions stated therein, such an act of writing an order is traditionally called drawing of a bill and technically called drawing of a draft. No accounting entry is passed in the books of any party on drawing of a bill (technically a draft). 20.8 Fundamentals of Accounting for Common Proficiency Test (CPT) 13.0 ACCEPTANCE OF A BILL TECHNICALLY A DRAFT) A bill is called a draft before its acceptance by a drawee. When the drawee puts his signature on the draft received from the drawer, such an act of putting the signature on the draft is traditionally called acceptance of a bill and technically called acceptance of a draft. After the acceptance of a draft, the draft becomes a bill. Such a bill is returned by the drawee to the drawer. The accounting entries in the books of drawer and drawee are summarized as under: In the books of drawer Bills Receivable A/c To Drawees A/c (Being the acceptance of a bill received from.) In the books of drawee Dr. Drawers A/c Dr. To Bills Payable A/c (Being the acceptance of a bill Given to)

14.0 PAYMENT OF A BILL OR HONOUR OF A BILL When the amount of the bill is realized on the maturity, it is said to have been paid off or hooured. In such a case, the following accounting entries are passed in the books of drawer and drawee: In the Books of Holder of a Bill Cash/Bank/A/c To Bills Receivable A/c (Being the bill collected) In the books of a drawee Dr.

Dr. Bill Payable A/c To Cash/Bank A/c (Being the bill discharged)

15.0 OPTIONS AVAILABLE TO A HOLDER FOR DEALING WITH A BILL OF EXCHANGE.

The various options available to a holder for dealing with a Bill of Exchange are as under: 1. 2. 3. 4. He may retain the bill till due date. He may send the bill to the Bank for collection. He may get the bill discounted with a bank/other person. He may endorse the bill to a creditor.

15.1 When the Bill is retained till due date. ILLUSTRATION 2 On 1 Jan., A sold goods worth Rs.10,000 to B and drew a bill on B at three months for the amount. B accepted the bill and returned it to A. The bill is duly honoured at maturity. Pass the necessary journal entries in the books of A and B, if A retained the bill till the due date. 15.2 When the Bill is sent to the Bank for collection When a bill is sent to the bank with instructions that the bill should be retained till maturity and should be realized on that date, it is known as Bill sent for Collection. The accounting treatment is summarized as under: Accounting Entries when a Bill is sent for Collection Case (a) On sending the bill In the books of drawer Bills sent for Collection A/c Dr. To Bills Receivable A/c (Being the bill sent for collection) Bank A/c Dr. Bank Charges A/c. Dr. To Bills sent for Collection A/c. (Being the bill collected by the Bank) In the books of Drawee No Entry

b) On realizing the amount of the bill

Bills Payable A/c To Cash A/c. (Being the bill discharged)

ILLUSTRATION 2 Taking the same information as given in Illustration 1, pass the journal entries in the books of A land B if A sent the bill to the Bank for Collection and the Bank charged 1% commission. Note: Journal Entries in Bs Journal will be the same as given in case of Illustration 1. 15.3 When the Bill is Discounted with the Bank An act of selling of a bill to a bank or some other person to obtain payment for it before its maturity, is called as discounting of a bill. The purchaser of the bill usually charges the discount in terms of interest for the unexpired term of the bill. accounting treatment is summarized as under: Accounting Entry when a Bill is discounted In the Books of drawer/seller Bank A/c Dr. Discount A/c. Dr. To Bills Receivable A/c (Being the bill got discounted with the Bank @..) In the books of a drawee The discounting of a bill does not at all affect the drawee and therefore, would not require any accounting treatment in his books. Such a discount is an expense for the seller and a gain for the purchaser. The

ILLUSTRATION 4 On 1st Jan., A sold good worth Rs.10,000 to B and drew a bill on B at three months for the amount. B accepted the bills and returned it to A who discounted the bill with a bank on 4 Feb., at 15% p.a. The bill is duly honoured at maturity. Pass the necessary journal entries in the books of A and B. 15.4 When the Bill is Endorsed in favour of a Creditor An endorsement means the writing of a persons name on the face or back of a negotiable instrument or on a slip of paper (called allonge) annexed thereto for the purpose of negotiation (Sec.15). The person who endorses the instrument is called the endorser. The person to whom the instrument is

endorsed is called the endorsee. The accounting treatment is summarized as under. Accounting Entry when a Bill is endorsed In the books of Drawer Endorsees A/c Dr. To Bill Receivable A/c (Being the bill endorsed in favour of.) ILLUSTRATION 5 On 1st Jan., A sold goods worth Rs.10,000 to B and drew a bill on B at three months for the amount. B accepted the bill and returned it to A who endorsed the bill one month after the acceptance, in favour of a creditor C in settlement of his debt for Rs.10,200. The bill is duly honoured at maturity. Pass the necessary journal entries in the books of A, B and C. ILLUSTRATION 6 A owed B Rs.8,000. He gave a bill for the same on 1 st Aug., payable after 4 months at the Bank of India, Chandni Chowk, Delhi. Immediately after receiving the bill, B endorsed it to C in payment of his debts. On 4 Sept., C discounted the bill at 12 percent per annum. The bill is met on due date. Pass the necessary Journal Entries in the books of A, B and C. ILLUSTRATION 7 A drew a 3 months bill for Rs.10,000 upon B. This bill was endorsed in favour of C who endorsed in favour of D who in turn endorsed in favour of A to discharge his own acceptance. Prepare Journal of A, B, C and D. In the books of Drawee The endorsement of a bill does not affect the drawee and therefore, does not require any accounting treatment in his books. In the books of Endorsee Bills Receivable A/c To Endorsers A/c (Being the receipt of a bill duty endorsed)

ILLUSTRATION 8 A drew a 3 months bill for Rs.10,000 upon B. This bill was endorsed in favour of C who endorsed in favour of D who in turn endorsed in favour of B to discharge his own acceptance. Prepare Journal of A, B, C and D. 16.0 DISHONOUR OF A BILL 16.1 A Bill of Exchange (excluding cheques) may be dishonoured by (a) nonacceptance or by (b) non-payment. 16.2 It is to be noted that a Promissory Note or cheque can be dishonoured by non-payment only. 16.3 When a bill is dishonoured by non-acceptance, no accounting entry is passed in the books of drawer and drawee. 16.4 When a bill is dishonoured by non-payment, the accounting entries in the books of Drawer, Drawee, Bank and Endorsee are summarized below. Accounting Entries on Dishonour of a Bill Case (a) In the books of Drawer In the books of Drawee In the books of Bank/Endorsee

When the Drawees A/c. Dr. bill is To Bills retained Receivable till A/c maturity. To Cash A/c (Being the amount of dishonoured bill and noting charges debited to the drawee)

Bill payable A/c Dr. Not Applicable Noting charges A/c.Dr. To Drawers A/c. (Being the amount of Dishonoured bill and noting charges credited to the drawer)

b) When the bill is sent to the Bankers for collection

Drawees A/c Same as above To Bills sent for Collection A/c. To Bank A/c (Being the amount of dishonoured bill and noting

In the books of Bank Customers A/c Dr. To Bills Receivable A/c To Cash A/c (Being the amount of dishonoured bill and

charges debited to the drawee) c) When the bill is got discounted Drawees A/c Dr. Same as above To Bank A/c. (Being the amount of dishonoured bill and noting charges debited to the drawee) Drawees A/c Dr. Same as above To endorsees A/c (Being the amount of dishonored bill and noting charges debited to the drawee)

noting charges debited to customer) Same as above

d) When the bill is endorsed

In the books of Endorsee Endorsers Ac. Dr. To bills Receivable A/c To Cash A/c (Being the amount of dishonoured bill and noting charges debited to the endorser)

Tutorial Notes
(i) Meaning of Noting Noting is the recording of the fact of dishonour by a Notary Public. Such noting must be made within a reasonable time after dishonour. (ii) Contents of Noting Noting must specify (a) the date of honour, (b) the reason, if any, assigned for such dishonour (c) Noting Charges The fee charges by Notary Public for noting is known as noting charges. (iii) (iv) Recovery The amount of noting charges charged is recoverable from the party who is responsible for dishonour. Treatment in the books of the Drawer The Drawees Account is always debited with the total amount i.e., the amount of the dishonoured bill plus the amount of noting charges (if any, incurred).

(v)

Treatment in the books of the Drawee The Drawers Account is always credited with the total amount i.e., the amount of the dishonoured bill plus the amount of noting charges (if any, incurred).

(vi)

Protest Protest is the formal certificate giver by the Notary Public. This certificate is based on the noting.

ILLUSTRATION 9 A sold goods to B for Rs.10,000 on 1 st Jan. and drew upon him a three months bill for the amount. B accepted the bill and returned to A. At maturity, the bill was dishonoured. Pass the necessary journal entries in the books of A and B in each of the following alternative cases. Case (a) When A retained the bill till the due date and paid noting charges of Rs.100. ILLUSTRATION 10 A bill receivable for Rs.100, which had been discounted at Rs.95, is dishonoured and bank paid Rs.2 as Noting Charges. Give Journal Entries to record the above in the books of: (i) the Drawer; (ii) the Drawee, and (iii) the Bank. 17.0 RENEWAL OF A BILL 17.1 Meaning of Renewal of Bill Cancellation of the original bill and drawing a fresh bill for another period on a request from the drawee, is called renewal of a bill. 17.2 Treatment of Interest In case of renewal of a bill, the interest for the extended period is either paid in cash or is included in the amount of the new bill. 17.3 Accounting Treatment The accounting entries in the books of drawer and drawee are given blow: Case (a) On canceling the old bill In the Books of drawer In the Books of Drawee

Drawees A/c. Bills payable A/c Dr. Dr. To Bills Receivable To Drawers A/c A/c

b) On making due the interest

Drawees A/c. To Interest A/c

Dr. Interest A/c. Dr. To Drawers A/c Drawers A/c To Bank A/c Dr.

c) On receiving a portion of the amount due d) On the acceptance of fresh bill

Bank A/c Dr. To Drawees A/c Bill Receivable A/c Dr. To Drawees A/c

Drawers A/c Dr. To Bills payable A/c

ILLUSTRATION 11 On 1st January, B owes Rs.10,000 and accepts a three months bill for the amount. On the date of maturity, B, not being able to meet the bill, offers A Rs.4,000 and asks him to draw another bill for three months for the balance plus interest at 15% p.a. A agrees to this proposal. entries in the books of A and B. 18.0 INSOLVENCY OF THE ACCEPTOR OF A BILL 18.1 When the bill is dishonoured due to insolvency of the drawee (or acceptor) of the bill, either nothing is recovered or some partial payment (called dividend) in full settlement of the claim is recovered. 18.2 The dishonour of the bill due to insolvency of the acceptor is recorded in the same manner as explained in case of dishonour of a bill. 18.3 The amount which remains unpaid by the drawee (or acceptor) is treated as under. In the Books of Drawer In the Books a Drawee to the Pass the necessary journal

Such amount is debited to Bad Such amount is transferred Debts Account Deficiency Account

ILLUSTRATION 12

If in Illustration 11, at maturity the second bill was dishonoured as B becomes insolvent and a dividend of 60 paisa in a rupee was received from his estate, what additional entries would be required to be passed in the books of A and B? 19.0 RETIREMENT OF A BILL date of maturity is called retirement of a bill. 19.2 Rebate An interest allowed by the holder of the bill to the drawee at an agreed rate of interest for the unexpired period of the bill as a consideration for premature payment is known as rebate. 19.3 Nature of Rebate Such rebate on retirement of a bill is an income for the drawee and is an expense for the payee. 19.4 Accounting Treatment Accounting Entry on Retirement of a Bill In the Books of Holder (i.e. Drawer or Endorsee) Bank A/c Dr. Rebate on Bill A/c. Dr. To Bills Receivable A/c (Being the payment received on bills retirement before the date of maturity and rebate allowed brought into account) ILLUSTRATION 13 A sold goods to b for Rs.10,000 on 1 st Jan. and drew upon him a three months bill for the amount. B accepted the bill and returned it to A. One month before the due date B returned the bill under a rebate of 18% p.a. Pass the necessary journal entries in the books of A and B. 20.0 ACCOMMODATION BILLS bills which are drawn, accepted or endorsed without any consideration. In the books of a drawee Bills Payable A/c Dr. To Bank A/c To Rebate on Bill A/c (Being the payment made on bills retirement before the date of maturity and rebate earned brought into account)

19.1 Meaning of Retirement of a Bill Making the payment f a bill before the

20.1 Meaning of Accommodations Bills Accommodation Bills refer to those

20.2 Purpose of Accommodations Bills Accommodation bills are drawn and accepted to meet the financial needs of the drawer/drawee/both temporarily. 20.3 Sharing of Proceeds of the Bill On discounting of such bills, proceeds may be shared by drawer and drawee in an agreed ratio. 20.4 Sharing of Discount The party bears the discounts in the proportion in which it shares the proceeds of the bill unless otherwise agreed. 20.5 Recovery in case of Dishonour On dishonour of such bill, drawer cannot file suit against the drawee because drawee is not liable to drawer. 20.6 Accounting Entries The accounting entries are made in the usual manner as in case of trade bills. 20.7 Distinction between Trade Bills and Accommodation Bills Basis of Distinction 1. Purpose Trade Bills Accommodation Bills

These bills are drawn to These bills are drawn settle a business to meet the financial transaction. needs of the drawer/drawee/both temporarily These bills are accepted for These bill are accepted a consideration without any consideration. These bills act as an These bills act as a evidence of indebtedness. source of finance. On discounting of such bills, On discounting of such proceeds remain with the bills, proceeds may be holder. shared by drawer and drawee in an agreed ratio. On dishonour of such bills, drawer can file a suit against the drawee, because drawee is liable to drawer. On dishonour of such bill, drawer cannot file suit against the drawee because drawee is not liable to drawer.

2. Consideration

3. Role

4. Sharing of Proceeds of the Bill

5. Recovery in case of dishnour

20.8 When one Bill is Drawn for the Accommodation of one of the parties The following steps are involved in this case. Step1 The party in need draws a bill upon the other party. Step 2 The drawee after accepting the bill returns it to the drawer. Step 3 The drawer discounts the bill with his bankers. Step 4 Just before the due date of the bill, the drawer remits the amount of the bill to the drawee to enable him to meet the bill on maturity. ILLUSTRATION 14 On 1st Jan., B accepted a three month bill for Rs.2,000 drawn on him by A for latters benefit. A discounted the bill on 4 Jan. @ 6% p.a. and at maturity sent B a cheque for Rs.2,000 in order to enable him to honour the bill. B duly honoured his acceptance. Pass journal entries in the books of A and B. 20.9 Where one Bill is Drawn for Mutual Accommodation The following steps are involved in this case. Step 1 One Party draws a bill upon the other party. Step 2 The drawee after accepting the bill returns it to the drawer. Step 3 -The drawer discounts the bill with his bankers and remits drawees agreed share in the proceeds. Step 4 Just before the due date of the bill, the drawer remits the balance due from him to the drawee to enable the drawee to meet the bill on maturity. ILLUSTRATION 15 On 1st Jan X, for the temporary and mutual accommodation of himself and Y, draws upon the latter a bill of exchange at 3 months for Rs.2,000. On 4 th Jan. X discounts the bill @ 6% p.a. and hands half the proceeds to Y. At maturity X remits the amount due to Y who meets the bill. Pass Journal entries in the books of both the parties.

20.10

When Bill Drawn by Each Other for Each others Accommodation

ILLUSTRATION 16 On 1st January, X and Y drew on each other a bill for Rs.2,000, payable three months date for their mutual benefit. acceptance. Record ILLUSTRATION 17 X and Y were friends and in need of funds. and remitted half of the proceeds to Y. On 1 st Jan. X drew a bill for Rs.2,00,000 for 3 months on Y. On 4 th Jan. X got the bill discounted at 10% p.a. On 1 st April, X could not send the required sum, instead, he accepted Ys bill for Rs.1,20,000 for two months. On 4th April, the bill was discounted by Y at 12% p.a. Out of this Rs.7,800 were remitted to X. At maturity of second bill, due to financial crisis, X became insolvent and sonly 50 paise in a rupee could be recovered from his estate. Required: Give Journal Entries in the Books of X and Y. 21.O BILLS RECEIVABLE BOOK 21.1 Meaning of Bills Receivable Book Bills Receivable Book is one of the subsidiary books which is used for the purpose of recording the details of bills receivable in favour of a person who is maintaining the Bills Receivable Book. 21.2 Posting of Bills Receivable Book Individual amounts are daily posted to the credit of the accounts of individual debtors from whom the bills are received periodic total (normally monthly total) is posted to the debit of Bills Receivable Account in the ledger by writing To Sundries as per B/R Book. 21.3 Format of Bills Receivable Book The simplest format of a Bills Receivable Book is given on page 20.31. ILLUSTRATION 18 Enter the following transactions in the Bills Receivable Book of A. On 4 January, they discounted with the At maturity each met his own banks each others bill @ 6% per annum.

29.12.7 30.12.7 31.12.7 31.12.7 31.12.7 22.0 22.1

Drew on B at two months for Rs.1,000 Drew on C at two months for Rs.2,000 and he accepted the next day. Received from D a bill duly accepted for Rs.3,000 dated 29 Dec., 2007 payable 60 days after date. Received from E, Xs acceptance for Rs.4,000 dated 30.12.2007 payable 60 days after date. Received from F, a bill for Rs.5,000 dated 30.12.2007 accepted by and drawn by Y payable two months after date.

BILLS PAYABLE BOOK Meaning of Bills Payable Book Bills Payable Book is one of the subsidiary books which is used for the purpose of recording the details of bills payable accepted by the person who is maintaining the Bills Payable Book.

22.2

Posting of Bills Payable Book Individual amounts are daily posted to the debit of the accounts of individual creditors to whom acceptances have been given. The periodic total (normally monthly total) is posted to the credit of Bills Payable Account in the ledger by writing By Sundries as per B/P Book.

22.3

Format of Bills Payable Book The simplest format of a Bills Payable Book is given on page 20.32.

ILLUSTRATION 19 Enter the following transactions in the Bills Payable Book of A. 29.12.7 30.12.7 30.12.7 Accepted Xs draft for Rs.1,000 a two months. Y drew on A at two months for Rs.2,000 and A accepted the same next day. Gave acceptance to Z for 3,000 dated 29 Dec., 2007 payable 60 days after date.