bill of exchange

BILL OF EXCHANGE

There are various types of negotiable instruments like bill of exchange, promissory notes and cheque etc.

Bill of exchange :  A orders to B pay to C .

A is drawer, B is drawee, acceptor and payer while c is payee.

It is an unconditional order to pay a sum of money  in writing to a definite person. It should be stamped.

Inland bill : if bill is written in india but payable either in India or to a person resident in India.

Example :

A writes bill in Bombay payable to Modi  at America.

A writes bill in Bombay payable to Obama at india.

A writes bill in Bombay payable to modi at india.

 

Foreign  bill : if bill is written outside india but payable any where.

if bill is written in india but payable

outside india to non resident person.

Example :

A writes bill in America payable to any person any where

A writes bill in Bombay payable to Obama at America.

It should be in triplicate, but pay only of them.

It should be noted and protested.

Promissory note :

A promises to B for payment of 1,00,000.

A is drawer, acceptor and payer.

B is drawee, payee.

It is in writing and unconditional obligations of payment of certain sum of money. It can not be bearer.

Difference between B/E and

Bill of exchange	Promissory note
Three	Two
Undconditional order	Promise to pay
Paid by acceptor	Drawer
Drawn by creditor	debtor
Drawer –secondary and conditional	Maker primary and absolute.
Notice of dishonor is required	Not required.
Noting and protesting required.	Not required.

Journal entries :

A drawer	B acceptor	C endorsee
Sale B account Dr To sales	Purchase Purchase dr. To A
Bill drawn B/R A/c Dr. To B	Bill accepted A a/c Dr. To B/P
On due date matured Bank a/c dr. To B/R a/c	B/P a/c dr. To bank
Bill discounted Bank a/c dr. Discount dr. To B/R	No entry
Discounted bill matured No entry	B/P a/c dr. To bank a/c
Discounted bill dishonoured B a/c dr. To bank	B/P a/c dr. To A
Endorse bill C a/c dr. To B/R	No entry	B/R a/c Dr. To A
Paid on maturity no entry	B/P A/c dr. To bank	Bank A/c Dr. To B/R
Endorsed bill dishonored B a/c dr. To C a/c	B/P a/c dr. To A’s Account	A a/c dr. To B/R

Accommodation of bills :

When there is a need of funds to the one or more parties, either  one or both may accept the bills and drawer will discount the bill.

Discount will be borne by both in the ration of fund utilizes from such proceeds.

On the date of maturity, accounts will be settled.

A draws the bill of Rs. 100000, b accepts, while B draws the bill of Rs. 50000, A accepts.

A discount B/R at Rs.99000 and 50% sent to B

B discount B/R at Rs.49000 and 40% sent to A

On due date A unable to pay his dues and accepts bill of Rs. 70,000. B discount the bill at Rs. 69,000 and

sent 10,000 to A.

B becomes insolvent able to pay 50% only. Pass j.e.

	In the books of A	In the books of B
	B/R a/c dr. 100000 To B           100000	A a/c dr. 100000 To B/P        100000
	B a/c dr.    50000 To B/P       50000	B/R a/c dr.50000 To A             50000
	Bank a/c dr. 99000 Discount  dr 1000 To B/R a/c  100000
	B a/c dr. 50000 To bank    49500 To discount500	Bank a/c dr. 49500 Discount  dr 500 To  A a/c    50000
		Bank a/c dr. 49000 Discount  dr 1000 To B/R a/c  50000
	Bank a/c dr. 19600 Discount  dr   400 To B  a/c    20000	A a/c dr. 20000 To bank       19600 To discount   400
	B a/c dr.    70000 To B/P             70000	B/R a/c dr. 70000 To A             70000
		Bank a/c dr. 69000 Discount dr. 1000 To B/R          70000
	Bank       dr. 10000 Discount dr.     435 To B             10435 (10000+20000) 69000   : 1000 30000   :       ?	A a/c dr. 10435 To bank       10000 To discount     435
	B/P A/C dr. 50000 To bank       50000	B/P A/C dr.  100000 To bank     100000
Bank dr.    19782.5 Bad debt dr. 19782.5 To B                 39565			A  dr. 39565 To bank       19782.5 Todeficiency19782.5

Due before new bill will be considered  as given below

 

 

 

B’s account for (2^nd bill)

Particulars	Rs.	Particulars	Rs.
To A	50000	By B/R	100000
To Bank	49500	BY Bank	19600
To discount	500	By discount	400
To balance	20000
	120000		120000

B’s account (insolvency)

Particulars	Rs.	Particulars	Rs.
To A	50000	By B/R	100000
To Bank	49500	BY Bank	19600
To discount	500	By discount	400
To B/P	70000	BY Bank	10000
		By discount	435
		By balance	39565
	170000		190000

P draws bill of Rs. 70000. Q accepts the bill. P discounted the bill at Rs. 68000. 70% sent to Q. on due date p unable to pay balance amount but he accepts new bill of 50000 in favour of Q. Q discounted at Rs. 49000. sent to p Rs.  9000 only . p becomes insolvent paid 50% of due. pass j.e.

In the books of P	In the books of Q
B/R a/c dr. 70000 To  Q            70000	P a/c dr.   70000 To B/P a/c         70000
Bank a/c dr.68000 Discount dr. 2000 To B/R a/c    70000
Q  a/c dr. 49000 To bank a/c  47600 To Discount   1400	Bank a/c dr. 47600 Discount dr.   1400 To P  a/c          49000
	B/P   dr.  70000 To Bank           70000
Q a/c dr. 50000 To B/P          50000	B/R a/c   dr. 50000 To P a/c               50000
	Bank a/c dr. 49000 Discount a/c dr.1000 To B/R   a/c          50000
Bank a/c dr. 9000 Discount dr 612.25 To Q a/c    9612.25	P a/c dr  9612.25 To bank              9000 To discount        612.25 49000    :  1000 30000 (21+9)   :     ?
B/P a/c dr. 50000 To Q             50000	P  a/c  dr  50000 To bank a/c      50000
Bank a/c dr 15306 Bad debt dr 15306 To Q             30612	P dr.      30612 To bank            15306 To deficiency   15306