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SPARSH ACADEMY - 8287476453

From Knowledge to Success


`

BILLS OF EXCHANGE
BE 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.

FEATURES:
1) A BE is a written order.
2) It is drawn and signed by the maker i.e. drawer of the bill.
3) It is an unconditional order to a person i.e. drawn to pay the specified
amount. The drawee must accept it to make it of value.
4) The specified amount is payable to the person named in the bill or to his
order or to the bearer.
5) It specifies the date by which the amount should be paid.
6) It is accepted by the drawee.
3 PARTIES TO BE
1) The DRAWER who makes or writes the BE.He is the person who has
granted credit to the person on whom the BE is drawn.
2) THE DRAWEE to whom the BE is drawn for his acceptance. He is the
person to whom the credit has been granted by the Drawer of BE.
3) THE PAYEE the person named in the BE to whom the amount is to be
paid.
TYPES OF BE
1) TRADE BILL where a BE is drawn and accepted for a trade transaction, it
is called TRADE BILL.
2) ACCOMODATION BILL where a BE is drawn and accepted for mutual
help, it is called ACCOMODATION BILL.

11th A/CS- BE
By Sameer Wadhwa

Prepared

SPARSH ACADEMY - 8287476453


From Knowledge to Success
`

ADVANTAGES OF A BE
i)
ii)
iii)
iv)
v)
vi)
vii)
viii)

Purchase and sale of goods on credit.


Discounting Facility.
Easy to recover the amount.
Endorsement
Certainity as to Payment.
No Reminder to debtor.
Convenient Mean of Trade Remittance.
Valid Evidence of Debit
PROMISSORY NOTE

A PN 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
FEATURES OF A PN
i)
ii)
iii)
iv)
v)

A PN is an unconditional written undertaking to pay the specified amount.


It is drawn and signed by the maker i.e. promisor.
It specifies the name of the payee i.e. to whom the payment is to be made.
The specified amount is payable to the specified person or to his order or
to the bearer.
Proper stamp duty is paid on the PN.
PARTIES TO A PN

1) MAKER
2) PAYEE

BASIS
11th A/CS- BE
By Sameer Wadhwa

BE

PN
Prepared

SPARSH ACADEMY - 8287476453


From Knowledge to Success
`

i)Drawer

The creditor is the drawer.

The debtor is the drawer.

ii) Order and


Promise

It contains an order to pay.

It contains a promise to
pay.

It needs aacceptance by the


Drawee.

It
does
acceptance
Drawee.

iii) Acceptance

iv) Parties

v)Liability

3 Parties

viii)Stamp

need
the

2 Parties

The liability of the drawer The promisor has the


arises only if the acceptor primary liability to pay.
does not pay.

vi)Noting and In case of dishonour, it


Protesting
would be better to get it
noted for non-payment.

vii)Copies

not
by

In this case noting is


necessary.

In case of foreign bills, 3 Only one copy is prepared


copies are made but whether it is foreign or
otherwise only copy is local.
prepared.
The bill payable on demand It has to be stamped in
need not to be stamped but any case.
otherwise stamps would
be necessary.
BASIC TERMS

11th A/CS- BE
By Sameer Wadhwa

Prepared

SPARSH ACADEMY - 8287476453


From Knowledge to Success
`

1) DRAWER - who makes or writes the BE.


2) DRAWEE on whom the BE is drawn for acceptance.
3) PAYEE person named in the BE to whom the amount is payable.
4) NEGOTIATION OR ENDORSEMENT means transfer of BE or PN to
another person.
5) ENDORSER who transfers the BE or PN in favour of other person.
6) ENDORSEE to whom the BE or PN is endorsed.
7) BILL AT SIGHT OR DEMAND The bills which are drawn ON DEMAND
and AT SIGHT are payable on presentation to the Drawee or Acceptor.
8) BILL AFTER DATE/AFTER SIGHT It is the bill in which the period is
counted from the date of drawing of the bill. After sight, the period is counted
from the date of acceptance of the bill.
9) TENOR OR TENURE OF THE BILL The period intervening b/w the date
on which the bill is drawn and that on which it becomes due.
10) DAYS OF GRACE These are three extra days added to the period of bill.
Eg: 8th March payable 3 months after date.
Due date- 8th June + 3 days = 11th June
If Public Holiday bill payable on the preceding working day.
If Bank Holiday next (succeeding) business day.
11) DATE OF MATURITY/DUE DATE on which the payment of the bill is due.
It is calculated by adding Days of Grace.
IMPORTANT POINTS:
a) Days of Grace are not allowed when the bill is payable on demand or at
sight.
b) When the period of the bill is stated in days the calculation of the maturity
date will be in days (which includes the date of payment but exclude the
date of transaction).
c) When the period of the bill is stated in months, the calculation of maturity
date will be in terms of calender months,ignoring the number of days in a
month.
11th A/CS- BE
By Sameer Wadhwa

Prepared

SPARSH ACADEMY - 8287476453


From Knowledge to Success
`

d) If the maturity date falls on a day which is a public holiday the maturity
date of the bill shall be preceding business day.
12) DISHONOUR OF BILL means that the bill is not paid by the Drawee on its
due date.
13) NOTARY PUBLIC AND NOTING CHARGES Notary Public is an officer
appointed by the Central or State GOVT. to exercise the power and
functions relating to noting and protesting of negotiable instruments for
dishonour.Noting authenticates the fact of dishonour.
14) NOTING CHARGES is the fee paid to the Notary Public for noting and
protesting the BE of its honour.
15) RENEWAL OF BILL When the acceptor of a bill is not a position to meet
the bill on due date, he may, with the consent of the holder accept a fresh bill
in place of the old bill , it is called Renewal of Bill.
16) RETIREMENT OF BILL When the Drawee pays the bill before its due
date,it is called Retirement of Bill.The holder allows him a rebate of certain
amount calculatedat a certain rate per cent per annum,from the date of
retirement to date of maturity.
17) HOLDER of a negotiable instrument (BE, PN or Cheque) is a person
entitled in his own name to the possession thereof and to receive or recover
the amount due thereon from the parties to it.
18) HOLDER IN DUE COURSE- A person who acquires the negotiable
instrument (BE,PN or Cheque) in good faith,for value and before the date of
maturity is a holder in due course.The main advantage of being in such a
position is that he acquires a good title even if the title of the transferor was
defective.
ACCOUNTING TREATMENT OF BE OR PN
DRAWING, ACCEPTANCE AND PAYMENT OF BILL:
When a party gives a Bill of exchange, it is considered that he has discharged
its debt.The party which receives the BE credits the amount of the party giving
it; a new type of asset called Bills Receivable comes into existence.The party
11th A/CS- BE
By Sameer Wadhwa

Prepared

SPARSH ACADEMY - 8287476453


From Knowledge to Success
`

which gives the debists the account of the receiver and treats the bills as a new
type of liability called Bills Payable.
Entries in the Books of Drawer
1) For Sale of Goods on Credit :
Customer / Debtor A/C
- - - - - - -Dr
To sales A/C
2) On Drawing ,Accepting and Receipt of the Bill :
Bill Receivable A/C
- - - - - - - Dr
To Customer/Debtor A/C
Entries in the Books of the Drawee or Acceptor/Debtor
1) For Purchase of Goods on Credit :
Purchase A/C
To Supplier/Creditor A/C
2) When Acceptance on Bill is given :
Supplier/Creditor A/C
To Bills Payable A/C
3) On Payment of the Bill at Maturity :
Bills Payable A/C
To Cash/Bank A/C

- - - - - - - Dr
- - - - - - - -Dr
- - - - - - - -Dr

BE : The holder of BE has the following options:


1)
2)
3)
4)

Retain the bill till the maturity date.


Discount the bill with the bank.
Endorse the bill in favour of a creditor.
Send the bill for collection.

1) When the Bill is retained till the date of Maturity The drawer recieves the
money from the drawee on the due date.
Cash/Bank A/C
- - - - - - - - Dr (With the amount of the Bill)
To Bills Recievable A/C
2) When the Bill is discounted with the Bank
a) Entries in Drawers Books or the Books of person receiving the Bill
When the holder of the Bill takes amount from a Bank against the Bill before
the due date, it is known as Discounting of the Bill.The bank charges an
amount termed as Discounting Charges.
11th A/CS- BE
By Sameer Wadhwa

Prepared

SPARSH ACADEMY - 8287476453


From Knowledge to Success
`

Accounting Entry
When Bill is discounted and Cash is received or credited to Bank A/C:
Cash or Bank A/C
- - - - - -- Dr (The amt. of bill less discount)
Discounting Charges A/C
- - - - - - - Dr (The discount charged by Bank)
To Bills Recievable A/C
(The full amount of the Bill)
b) Drawees Books The acceptor or drawee is not affected by discounting of
the bill and therefore does not make any entry in his books in this regard.He
will pay it to the holder of the bill (whosoever he may be) on maturity.
Bills Payable A/C
- - - - - - - - -Dr
To Cash/Bank A/C
3) When a Bill is Endorsed or Negotiated in favour of a Creditor
When the holder of a bill transfers the bill to a 3 rd party, the bill is said to
have been endorsed or negotiated.The person who endorses the instrument
(bill) is called Endorser.The person to whom the instrument (bill) is endorsed
is called the Endorsee.
Drawers Books or Person Receiving the Bill
Creditors A/C
- - - - - - - - - - Dr
To B/R A/C
Creditors A/C is debited because a liability has been paid and B/R A/C is
credited because B/R has been endorsed.
As on the date of maturity, the payment will be received by the
endorsee.Hence, at the time of payment, the Endorser does not pass any
entry in his books.
Acceptors Books No entry regarding Endorsement .He will pay the
amount on the due date to the holder of the bill and record the following
entry.
Bills Payable A/C
- - - - - - - - Dr
To Cash/Bank A/C
Endorsees Books

Bills Recievable A/C


- - - - - - - - -Dr
To Endorser
When a Bill is honoured at maturity;
Cash/Bank A/C
- - - - - - - - - Dr
To Bills Recievable A/C

11th A/CS- BE
By Sameer Wadhwa

Prepared

SPARSH ACADEMY - 8287476453


From Knowledge to Success
`

4) When the Bill is sent to the Bank for collection The persons receiving the
BE, may retain the Bill till maturity date and receive the amount as per the
Bill.But in order to ensure safety,he may send it to his bank with instructions
that the Bill be retained and released on its due date.It means bank will
retain the bill in safe custody and present it for payment on the due date.If
the bill is sent to the bank with such instructions, it is known as Bill Sent for
Collection.

Bill sent for collection A/C


- - - - - - - - Dr
To Bill Receivable A/C
(Being the bill sent for collection)

When the amount is realised, the entry is:


Bank A/C
- - - - - - - - - Dr
To Bills sent for collection A/C
(Being the Bill sent for collection)

The drawee will not pass any entry in his books for the bills sent for
collection.He will pass the entries in his books in the usual manner when he
makes the payment, no matter whether the payment is made to the drawer or
his bank or an Endorsee.
Dishonour of a Bill means a situation when the acceptor of the bill refuses
or is unable to pay the amount.The holder of the bill may present the bill
through a Notary Public and get the dishonour of the bill dated.
1)
2)
3)
4)

Noting will consist of the following:


That the bill has been dishonoured;
The date of the dishonour;
The reason, if any, for the dishonour; and
The fee charged by the Notary Public ,i.e. , Noting Charges.
Entries on Dishonour of a Bill

i)

ii)
11

th

Drawers Books
When the Bill is retained by the Drawer till Maturity and Dishonoured on due
date :
Drawee A/C
- - - - - - - Dr
To Bills Recievable A/C
(The amount of the bill)
To Cash/ Bank A/C
(Noting Charges)
When the Bill is discounted with bank and is Dishonoured , the entry will be

A/CS- BE

By Sameer Wadhwa

Prepared

SPARSH ACADEMY - 8287476453


From Knowledge to Success
`

Drawee A/C
To Cash/Bank A/C

- - - - - - - Dr
(The amt of Bill & Noting Charges)

iii)

When the Bill is endorsed to the Endorsee & is Dishonoured :


Drawee A/C
- - - - - - - -Dr
To Endorsee A/C
(Amt. of Bill & Noting Charges, if any)

iv)

When the Bill has been sent to the Bank for collection and is Dishonoured :
Drawee A/C
- - - - - - - - -Dr
To Bills sent for collection A/C
(Amt of Bill)
To Cash/Bank A/C
(Amt of Noting Charges, if any)
When a Bill is sent to the bank for collection and is dishonoured, the bank
returns the bill to the Drawer and the Drawee himself pays the noting
charges.
NOTE: In all the circumstances Drawee or Acceptor is debited to cancel
the credit given to him at the time of acceptance of the bill.
Drawees Books If the bill is dishonoured, the liability to the creditor
concerned will be restored.In addition to the amount of the bill,noting
charges ,if paid, for getting the bill noted, will also be payable to the creditor
.Therefore his account should be credited with the amount of the bill plus
the noting charges,if any.
Bills Payable A/C
- - - - - - - -Dr (Amt of the Bill)
Noting Charges A/C
- - - - - - - - - Dr (Noting Charges, if any)
To creditor (Drawer)
(Amt of the bill plus noting charges)
RENEWAL OF CHARGES Sometimes, an acceptor expresses his
inability to meet the bill on the due date and request the holder, or the
drawer, to substitute the old bill with a new one.If the Drawer agrees, the old
bill is cancelled and a new bill is drawn and of course accepted by the
drawee.This process is called Renewal Of Bill.
No noting required.The drawer will charge interest for the extension of
time.The amount of interest may be paid in cash or included in the amount
of the new bill.

Transactions

11th A/CS- BE
By Sameer Wadhwa

Drawers Books

Drawee Books

Prepared

SPARSH ACADEMY - 8287476453


From Knowledge to Success
`

Drawee A/C
- - - - - - Dr
To Bills Receivable A/C

Bills Payable - - - - - - -Dr


To Drawer

Drawee A/C
- - - - - -Dr
To Interest A/C

Interest A/C
- - - - - - Dr
To Drawer A/C

Cash/Bank A/C - - - - - -Dr


To Drawee A/C

Drawer A/C - - - - - -Dr


To Cash/Bank A/C

Bills Receivable A/C - - - Dr


To Drawee A/C

Drawer A/C
To B/P A/C

- - - - - - Dr

RETIRING A BILL UNDER A REBATE If the drawee or the acceptor


wishes to pay the amount of the bill before the date of maturity, it is called
Retiring the Bill.
Usually the holder, in such a case, would be willing to allow a deduction
because of the interest involved.Such a deduction is called Rebate.For the
acceptor, the rebate will be a gain and for the holder, a loss.
ENTRIES:
In the Books of theAcceptor
B/P A/C
To Cash (or Bank) A/C
To rebate A/C

- - - - - - - -Dr (The amt. of the bill)


(The actual amt. paid)
(Rebate earned)

In the Books of the Holder


Cash (or Bank) A/C
- - - - - - -Dr
Rebate A/C
- - - - - - - Dr
To Bills Receivable A/C
ACCOMODATION BILL is a BE drawn on & accepted by that party so that
it can be discounted.There is no underlying trading transaction.
It is also possible that the proceeds of the bill may be shared by the 2
parties.In that case, each party will also bear the discount in the preparation
of the amounts received.
11th A/CS- BE
By Sameer Wadhwa

Prepared

SPARSH ACADEMY - 8287476453


From Knowledge to Success
`

ACCOUNTING TREATMENT OF ACCOMODATION BILLS There are no


special entries for Accomodation Bills, entries are made in the same manner
as for other bills.The only point to remember is that if the proceeds of the bill
are shared, along with the entry for the remittance, a suitable entry is
passed for the proportionate amount of the discount also.

Basis

Trade Bills

Accomodation Bills

1) Nature

The bills are based on These bills are drawn to


sale and purchase of help someone in need of
goods.
funds.

2) Consideration

There
is
a
definite The acceptor may not
consideration for which receive consideration for
the bill is accepted.
his acceptance.

3) Extension
of Credit
4) Proceeds

5) Recovery

11th A/CS- BE
By Sameer Wadhwa

These bills are a form of These bills do not have


credit extended to the the character of a loan.
purchaser of goods.
When these bills are When these bills are
discounted, the proceeds discounted, the proceeds
may be shared by the 2
remain with the holder.
parties.
If
these
bills
are It may not be easy to
dishonoured, the amount maintain a suit for
may be recovered easily recovery of the amount.
through the court.

Prepared

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