DEPARTMENT OF TECHNICAL EDUCATION

ANDHRA PRADESH
Name : Sreenivasa Rao B.
Destination : Lecturer in CCP
Branch : Commercial and Computer Practice
Institute : S.U.V.R&S.R GPW, Ethamukkala
Year/Semester : III
Subject : Accountancy II
Subject Code : CCP 302
Topic : Bills of Exchange
Duration : 50 Mts
Sub Topic : Bill of Exchange – Honour and
dishonour bills on due date
Teaching Aids : PPTs, ANIMATIONS

CCP 302 . 45 1
Objectives :
On completion of this class, you will be able
to Understand:
 Entries which are to be recorded in the
books of parties concerned while the bill is
honoured and dishonoured under certain
circumstances
 Retiring of Bill under Rebate – Meaning -
Entries

CCP 302 . 45 2
Recap :

 In the previous class we have discussed and

solved the problems with different types of
accounting treatment while a bill is honoured
and dishonoured
 A problem was given to students for practice
in the previous period. The same has to be
verified and explained in detail in the present
class and doubts if any, are to be clarified

CCP 302 . 45 3
Illustration :
Puri draws a bill for Rs. 3000 on Chakri for 3
months. The same was accepted by Chakri and
agreed to pay at the Indian Bank. The bill is met on
the due date. Record the entries under the following
cases.
 If he had retained the bill till due date and then
realized it on maturity
 If he had discounted the same with his banker
for Rs.2500
 If he had endorsed it over to his creditors
Sarma and Company in settlement of his dues
to him
 If he had sent the same to the bankers for
collection
State also what entries are passed under the
above cases; if the bill is dishonoured on the
due date
CCP 302 . 45 4
Solution :
Journal of Puri :
Date Particulars LF Debit Credit
Rs. Ps Rs. Ps
Bills receivable account Dr 3,000
To Chakri account 3,000
(Being the acceptance of Chakri
received)
Honour of the Bill 3,000
a) Bank account Dr 3,000
To Bills receivable account
(Being the amount received on the
maturity date)
b) Bank account Dr 2,500
Discount account Dr 500
To Bills receivable account 3,000
(Being the bills dishonoured with
CCP 302 . 45 5
the banker)
Journal of Puri (Contd..) :
Date Particulars LF Debit Credit
Rs. Ps Rs. Ps
c) Sarma and company account Dr 3,000
To Bills receivable account 3,000
(Being the bills endorsed)

d) (i) Bills sent to bank for collection 3,000

account Dr 3,000
To Bills receivable account
(Being bills sent to bank for collection)

d) (ii) Bank account Dr 3,000

To Bills sent to bank for collection a/c 3,000
(Being the bill collected by the banker on
due date)

CCP 302 . 45 6
 Journal of Puri (Contd..) :
Date Particulars L F Debit Credit
Rs. Rs.
Ps Ps
Dishouring of the bill
a) Chakri account 3,000
Dr 3,000
To Bills receivable account
(Being the bill dishonoured on the due
date) account
b) Chakri 3,000
Dr 3,000
To Bank account
(Being the amount paid to bank on
behalf of Chakri since he
dishonoured the bill)
CCP 302 . 45 7
Journal of Puri (Contd..) :
Date Particulars LF Debit Credit
Rs. Rs.
c) Chakri account Dr 3,000
To Sarma and company account 3,000
(Being the dishonour of the bill
endorsed to
Sarma and company)
d) Chakri account Dr 3,000
To Bills sent to bank for collection 3,000
a/c
(Being the bills sent to bank for
collection
dishonoured on due date)

CCP 302 . 45 8
Retirement of the Bill before the due
Date – Under Rebate :
Sometimes a bill may be met by the drawee
(acceptor) before its due date
for which he gets a rebate that is a reduction in the
total amount payable on the bill.
This process is called Retiring the bill
under rebate (or ) discount.
The accounting procedure to this rebate is similar to
discount

CCP 302 . 45 9
Entry in the books of drawer:

Cash account Dr (with actual amount received)

Rebate account Dr (with amount of discount
allowed)
To Bills receivable account (with full amount)
(Being the amount on bill realized
before maturity and rebate allowed)
-----------------------------------------------------------------------

CCP 302 . 45 10
Entry in the books of drawee:

Bills payable account Dr (with full amount)

To Cash account (actual payment)
To Rebate account ( discount received)
(Being the amount paid before maturity and
rebate earned)
-----------------------------------------------------------------------

CCP 302 . 45 11
Problem :
On 1-1-2008 Anitha drew a bill on Bhavya for
Rs.10,000 payable after 3 months.
One month before maturity date, Bhavya informed
Anitha that she wants to make payment of the bill
immediately, to which Anitha agreed and also
allowed her rebate 6% per annum.
Give necessary journal entries in the books of
Anitha and Bhavya.

CCP 302 . 45 12
 Journal of Anitha :
Date Particulars LF Debit Credit
Rs. Ps Rs. Ps
1-1-08 Bills receivable account Dr 10,000 10,000
To Bhavya account
(Being the acceptance received from
Bhavya)
4-3-08 Bank account 9,950
Dr 50
Rebate account Dr 10,000
To Bills receivable account
(Being the bill retired by Bhavya under
rebate)
Note: Calculation of rebate:
Rs. 10,000 x 1/12 x 6/100 = Rs.50

CCP 302 . 45 13
 Journal of Bhavya :
Date Particulars LF Debit Credit
Rs. Ps Rs. Ps
1-1-08 Anitha account Dr 10,000 10,000
To Bills payable account
(Being the acceptance given)
4-3-08 Bills payable account Dr 10,000
To Bank account 9,950
To Rebate on bills account 50
(Being the bill retired under
rebate)

CCP 302 . 45 14
Summary :
 If the drawee wants to pay the accepted bill
amount before its due date, the drawer will allow
some amount as rebate to drawee for his early
payment. This process is called retiring the bill
under rebate
 Rebate/discount is a concession to drawee for
his early payment of the bill before the due date

CCP 302 . 45 15
Quiz :

1. Bills of exchange can not be:

a) Crossed
b) Endorsed
c) Submitted
d) None of the above

CCP 302 . 45 16
2. Retiring a bill under rebate means:
a)Making payment for the bill before
the due date
b)Making payment after due date
c)Dishonour of the bill
d)Refusal of bill

CCP 302 . 45 17
Frequently Asked Questions :

1. What is meant by retiring of a bill?

CCP 302 . 45 18
Assignment :

1. What briefly about “retiring a bill under

Rebate”.
2. Solve some problems from your text
book on retirement of bill

CCP 302 . 45 19