decom ACCOUNTING FOR BILLS OF EXCHANGE Learning objectiv Ale studing this chapter, students shall be able to: ‘@ Exaplain the concept of Bill of Exchange and Promissory Note. €@ Distinction between Bil of Exchange and Promissory Note, ‘© Define Important terms of Bil of Exchange and Promissory Note ‘@ Record the Accounting Treatment of Bill of Exchange under different ‘Cireumstances [Suggested Methodlogy : Tustration - curr - Explanation method. ‘A Bill of Exchange and Promissory Note both are legal Instruments which facilitate the credit sale of goods by assuring the seller thatthe amount will berecov- cred aftera certain period. Both of these are legal instruments under the Nego- tiable Instruments Act, 1881, BILLOF EXCHANGE “A Bll of Exch: strument in writing containing, an unconditional order signed by the maker, directing a certain person to pay a certain sum of -y only to, oF to the arder of, a certain person or to the bearer of the instrument.” Section § of the Negatibale Instrument Act, 1881 Features of a Bill of Exchange are : 1. ABillof Exchange mustbe in writing 2. Itmust contain an oreler (and nota request) to make payment, 3. ‘The otderof payment mustbe unconditional 4, The amount ofbill of exchange must be certain, s. 6 7 “The date of payment should be certain Itmustbe signed by the drawer ofthe bill Itmustbe accepted by the drawee by signing on it 8. ‘Theamountspecified inthe bill of exchange is payable either on demand or on the expiry ofa fixed period, 9. The amount specified in the billis payable citherto. certain person orto his, order or tothe bearer ofthe bill, 10, Itmust be stamped as per legal requirements PARTIESTOA BILLOFEXCHANGE, 1. DRAWER: Drawer isthe person who makes or writes the bill of exchange. Drawer isa person who has granted eredit tothe person on whom the bill afexchange is drawn, The drawer is entitled to receive money from the drawee (acceptor) 802. DRAWEE : Drawee is the person on whom the bill of exchange s drawn for acceptance. Drawee is the person to whom credit has been granted by the drawer. The drawee is liable to pay money to the creditor/drawer. 3. PAVEE: Payee's the person who receives the payment from the drawee, Usually the «drawer and the payee are the same person. In the following cases. drawer and payee are two different persons @) Whenthe billis discounted by the drawer from his bank: payee isthebank. {i When the bill isendorsed by the drawer to his creditors ‘payee is the endorsee. SPECIMEN OF A BILLOFEXCHANGE New delhi (6th August, 2011, C0 ee roc month after date pay to me or my ard, the sun of ‘OF ify thousand only] for Valucreceived “Accepted, i. (Signed) ‘(Mukesh Chand.) (Signed) To MUKESH CHAND SANT KANWAR D-24 Sector-15 8 181, Sector-9 Rohini Delhi-85 Rohini Dethi 89 ‘CONTENTS OF BILL EXCHANGE 1, Date~ The date on which a bill s drawn, is writen on the top right corner ofthe bill. helps in determining the date of maturity of the bill 2. Teem/Tenure— ‘Term specifies the time period for whieh billis written. Itshouldbe specified in thebody of thebill 3. Amount= Amount in figure should be mentioned in the top Ielfcomer and amount in words should be mentioned in body ofthe bill. 4. Stamp— ‘Stamp of proper value depending upon the amount of bill must be affixed on the bills of exchange. 5. Name of parties— The name and addresses of the drawer and the drawee should be mentioned in hebill ofexehange. 81 decom6. For Value Received. [nmeans te bill has been issued in exchange of some consideration, These words are ery important because lew does not consider those agreements which have been ‘made without consideration. ADVANTAGES OF BILLOF EXCHANGE 1. Ithelpsin purchases and sales of goods on credit basis, 2. tis alegally valid document in the eyes of law. It assures an easier recovery to the drawer if drawee fails to make the payments. 3. A bill ean be discounted from the bank before its date of maturity. By discounting with the bank, drawer can get the money before due date ifrequired. 4. Itcan be easily transferred from one person to another by enclorsement. 5. Ithelps in recovery of debt without sending reminders o the debtor. 6. Itassures the seller about the timely recovery of debt. Soa drawer and drawee can plan about its cash management. PROMISSORY NOTE A Promissory notes an instrument in writing (not being a bank note ora curency note) containing an unconditional undertaking signed by the maker pay acertain sum of money only t0 orto the order of a certain person or to the bearer of the FEATURES OF A PROMISSORY NOTE, 1. There must bean unconditional promise to pay a certain sum of money ona ‘certain date 2. Itmmustbe signed by the maker. 3. The name of the payee must be mentioned on it. 4. Timustbe stamped according toits value PARTIES TO A PROMISSORY NOTE. 1, ‘The Maker: The maker is the person who makes the promise to pay the amount on a certain date, Maker of bill must sign the promissory note before giving itto the payee. 2. The Payee: The payee is the person who is entitled to get the payment from the maker of promissory note, Payee isthe pesson who has granted the credit SPECIMEN OF A PROMISSORY NOTE New Dalhi “7h August, 2011 These months after date we promise to pay Gulab Singh or arder asum of & two lakhs only, for value received. To (Signed) ‘Gulab Singh Rajiv Verma, 18, Paschim Vihar 95, Sector - 16 New Dethi- 64 Robini Dethi-85 decomdecom DISTINCTION BETWEEN BILLS OF EXCHANGE AND PROMISSORY NOTE: Basis of Bills of Exchange Promissory Note difference 1. Drawer TheDraweristhe creditor | The Drawers the debtor 2, No, of Parties.) Ithasthreepartes namely: | Ithastwo parties namely fe Thedrawer e Themaker © Thedrawee ‘@ The payee fe Thepayce 3. Orderor Itcontainsan orderto Itcontains promise to Promise ‘make the payment ‘make the payment 4. Acceptance | Itisvalidenly when Itdoes notrequire any accepted by thedrawee. | acceptance:fom the drawee 5. Payee Itcascofbillofexchange, | Drawer ormaker cannot drawercan bethe payee | the payecof ofthe bil. promissory note, 6. Noting Iteaseofdishonourofbill | Noting snotnecessary nnotingbecomesimportant. | incase of dishonour of Promissory note, The liability ofthe drawer arises only ifthe drawee fails to make payment. The lability ofthe drawer (maker) is primary. IMPORTANT TERMS 1, Term of Bill: ‘The period intervening between the date on which abl is drawn and the date on which t becomes due for paymentis called “Term of Bill 2. Due Date: Due date is the date on which the payment of the bills due. Due date is ascertained inthe following manner: © Incascof Bilatsight™ ‘Due date isthe date on which a bills presented forthe payment. (i) Incase of “Bill after Date’ - Due Date=Date of Drawing +Term of Bill. (@ Incaseof *Billaftersight’— [Due date =Date of Acceptance+ Term of Bill. 3. Days of Grace : Drawec isallowed three extra days after the due date of bill for making pay- ‘ments, Suci 3 days are know as ‘Days of Grace’. Itisa custom to add the days of srace,4. Date of Maturity : The date which comes after adding three days of grace wo the due date ofa bill iscalled “Date of maurity’ Mlustration 1 A bill of exchange for % 25000 is drawn by An B on 1" April, 2011 for 3 Months. B accepted the ill on 10th April, 2011 Find the DUE DATE and DATE OF MATURITY if Cash I The bill is Bill After date Case Il -Thebill is Bill After Sight Solution: DUE DATE Date of Maturity Case [= When the Billis “Bill After date” 1*July 2011 4 July, 2011 Case 1 When the Billis “Biller Sigh” 10° July 2011 138 July, 2011 ‘© Incasea bill is Bill after Sight” term of bill starts from the date of acceptance. 5. Bill at sight/Bill on Demand ‘When no time for payment is mentioned in the bill of exchange and the bi payable whenever itis presented to the drawee for the payment, such bills are knowas "Billatsight" or "Bill on Demand. 3 days of grace are not allowed when bills payable on demand. 6. Bill after Date Bill after dates the billin which due date and date of maturity is ascertained from the date on which the bill is drawn. ‘3days of grace are allowed for ascertaining the date of maturity it case of bill after date, 7. Discounting of Bill ‘When the bill is eneashed from the bank before its due date, it isknown as discounting ofbill. Bank deducts its charges from the amount bill and disburses the balance amount Mlustration 2 Ram sold goods toshyam forRs. 30,000 atcrediton I* April, 2011, Ram discount thet bill with his bank on 4® May 2011 @.9% per annum find out: (Te amountof discounting charges The amount that Ram willreceive from his bank atthe time of discounting the vil. 84 decomA Solution: (@ Discounting Charges: Rate mount of Bll Discounted x" Unexpired Perio Amount of Bill Too * Unexpired Period =3000%.9 10012 (Ram will receive from hisbank % 29,500 (ie, € 30,000 -%450)at the time of discounting thebill, 8, Endorsement of Bill Endorsement of abill means the Process of transferring the title of bill from ‘the drawer or holder to their ereditors. ‘The person tansfering the titles called " Endorsee” and the person to whom the bill is transferred called “Fndorsee’. The endorsee can further endorse the bill favour of his creditors. Endorsements executed by puting the signature atthe back ofthe ill 9. Bill sent for Collection 2450 Iisa process when the bill is sent tothe bank with instructions to keep the bill il ‘maturity and collectits amount ftom the acceptor on the date of maturity. 10, Dishonour of Bill ‘When the drawee (ar acceptor) of the bill fails to make payment of the bill on the date of maturity itis called'Dishonour of Bill U1, Noting of Bill ‘Toabtain the proof of dishonour ofa bill, itis re-sent to the drawee through a legally authorized persons called Notary Public, Notary Publie charges a small fe for Providing this service known as noting charges, Noting charges are paid to the Notary Public first by the holder of the bill but are ultimately recovered from the drawee, because he is the person responsible for the dish 12, Retirement of a Bill When the drawee makes the payment of the bill before its due date it is called Retirment ofabill Insucha case, holder ofthe bill usually allow a certain amount as Rebate o the davies, CBSEguide.comdecom Amount of rebate is calculated at a fixed percentage for the unexpired period only. Mlustration 3 On Ist January, 2011 A sold good to B for € 30,000 and drew upon hima bill at3 months forthe amount. B accepted the bill and retumed it to A. On 4 March, 2011, B retired the bill under rebate of 12% per anum, Calculate the amount of Rebate, Solution : Rebate Amount of, Rate _/ Unexpired Period Bu <0 30,000X 12 1 Too *Tz = 2300 B will pay 29,700 (& 30,000 -® 300) to A at the time of retiring the bill. 13, Renewal of a Bill Sometimes, the drawee ofa bill finds himself unable to meet the bill on due date, To avoid dishonouring ofbill, he may request the holder of he bill to cancel the ‘original bill and draw a new bill in place of old one. Itthe holder agrees, the old bill is cancelled and a new ill with new terms is drawn onthe drawee and also accepted byhim. This process is called 'Renewal of bill In this case, Noting of the bill is not required as cancellation of the bi mutually agreed upon by both the parties of the bill. Normally, the drawer charge interest forthe period of new bill. The interest may be paid in cash ormay be added in the amount of new bill. any past paymentis made at the time of renewal of abill, interests calculated only on the outstanding amount. IMustration 4 ‘Narender requests Rajneesh to renew his acceptance for 9 25,000 for3 months together with interest @ 18% p.a, Calculate the amount of new bill drawn on Narender Solution : Interes Amount? yy Rate y Period of Ousianding™ T00 * New Bill 1B 3 = 25000. = joo%ig 701128 86Amount of New Bill =¥ 25,000-+€ 1,125 = 126,125 * Amount Outstanding =Amount of Bill cancelled — any partpayment made| incash atthe time of renewal oftill 14, Insolvency of Aceeptor— ‘When the drawee (Le. acceptor) of bill isunable to mect his liabilities on due dato, the drawee become insolvent. In such case, entries forthe dishonour ofthe ill, are passed in the books of drawer/hol der and drawee af the bill. Any ptotottionate amount received from the drawee is ecorded inthe books of thcholderand the amount unrecoverable is debited to “Bad Debts A/c’. Accounting Treatment of Bill Transactions A. On the Due Date! lis Honoured — “The accounting treatment under this headingis based onthe assumption that billis duly honoured at maturity of the ill The drawer can treatthe bill inthe following Case-T Bill is retained by the drawer till date of maturity decom ‘Transaction In the books of Tn the books of DRAWER DRAWEE 1. WhenGoods | Drawoe Dr. Purchases Ale Dr, are sold on ToSales Ale ToDrawer credit (Being goods Sold (Being goods purchased on ered from Drawer) 2, Whenbill Bills ReceivableA‘c Dr. | Drawer Dr isDrawn ToDrawee ToBills Paybale Alc (Beingacceptance (Being acceptance received fom drawee) givento drawer) 3. WheaBillis Cash/Bank aie Dr BillsPayableA‘e Dr Honouredon ToBills To Cash/Bank Ale Date of Receivable Are Mauaity (Being paymentof bill (Being payment of bill made received from Drawee) todrawer) 87Case II: When the bills discounted from the Bank by the Drawer ‘Transaction Inthe books of In the books of Drawer Drawee 1. Whenthebill | Bank Ale De isdiscounted | Discouning fiom Bonk ChargesA’o De. No Entry ToBills Receivables We (Beingbill discounted for the Bank 2 Whenthebill BilisPaybleAle De ishonouredon No Entry To Cash’Bank Alc date of maturity (Being the payment of bill made Note : ‘© Discounting charges are always recorded (i. debited) in the books of Drawer. © _Inthe books of Drawee, there isno effect of discounting the bill Case Ill: When bil rendorsed in favour ofa creditor ‘Transaction Inthe books of In the books of Drawer/ Endorser Drawee 1. Whenbill Endorses = Dr isendorsed ToBills Receivable Afe No Entry (Beingbill receivable endorsed), 2 Whenbillis BillsPayableAve De honoured on Nokntry ToCashvBank Alc date ofmaturty (Being the payment ofbill, mate) (Transaction Tn the Books of Endorse 1. Whenbillis BillsReceivableAfe Dr endorsed, ‘ToEndoreser (Being bill received from debtor through endorsement) 2 Whenbills CashiBank Ale De honoured on date ‘ToBillsReceivable ofmaturity (Being Bill alised ondate of maturity) 8smyCBSEguide.com Case -IV When sent to the Bank for collection ‘Transaction In the books of Inthe books of Drawer Drawee 1, Whenbill Bills Sent for issentfor CollectionAle Dr, colletin ToBills No Entry toBank Receivable Ave (Being bill sent for collection) 2, When the Bank Ale Dr BillPayableA‘e Dr amounts To Bill Sent ToCastvBank Nic realised on for Collection Afe (Being bill paid on date dateof (Being the bil sent for maturity) maturity collection realised on Note? ‘© Therewill bend effectin the books of Drawee either the bill is discounted from. the bank or endorsed to a creditor or sent tothe bank for collection, The drawee ‘makes the payment in normal manner. ‘ Itis only in the books of drawer where an additional entry is passed to record the effect ofthe above transaction Mlustration 5 X sold goods to ¥ on 1!April, 2011 for Rs. 20,000 on credit andl drew upon him bill forthe same amount payable after3 months. Y accepted the bill and retuned it (OX. On the date of maturity bill was presented oY forthepayment and he honoured. Pass the Journal Entries in the books of both the parties when : 3 I—Billisretained by the X till the date of maturity ¢ 1 -Billis discounted by X from his bank on 4th April @ 6% per annum, ¢ 111 Bill is endorsed in favour of Z on 4th May, 2011. 11 —Bill is sent 9 Bank for collection on Ist July, 2011 Also record the Journal Entries in the books ef Z (Case- II) 89Solution : Inthe book of X (Drawer) Journal Date Particulars Le 20iT April, | Y ‘ToSales Alc (Being goods sold to'Y on credit) Dr. April, 1 BillsRecivable Ae ToY (Being acceptance received from ¥) Dr July, ‘Case=T When bill is retained by X| All the date of maturity CashBank Ae ToBills Receivable Ave Dr. (Beingamountreceived from B against bill) April, 4| ‘Case~IT When bill is discounted byX from his bank BankA‘e Discounting Charges Ale ToRills Receivable Ave (Being thebill discounted ‘rom the bank, discounting Changes are 2000x_,.3 0012 Dr Dr, = £300) May, 4 ‘Case— III when bill is Endorsed infayour of Z Zz ToBills Receivable Ale (Being bill endorsed in favour of Z) De ‘Case—1V When bill is sent to bank for collection 20,000 20,000 20,000 19,700 300 20,000 20,000 20,000 20,000 20,000 20,000 90Date ] Particulars LE | Dr ce July, | | Bills Sent for Collection A’e Dr. 20,000 Tobills Receivable Afc 20,000 {Being bill sent for collection tobank,) July,4 [Bank Are Dr 20,000 ToBillsent for Collection Ae 20,000 {Beingamount realised sro bill set for Collection) Note 1, First two entries passed on April 1, 2011 will be same in the books of X (Drawer) inall the 4 cases, 2. fabillishonoured on the date of maturity. "NO ENTRY is passed on the date of maturity inthe books of drawer, if: ‘¢ Billisdiscounted fromthe bank; or ve _Billisendorsedin favour of creditor. (in all 4 cases) In the Books of ¥ (Drawee) Journal Date | Particulars LE ce z 2017 April, 1] Purchases Afe Dr. 20,000 Tox 20,000 {Being goods purchased rom X on credit) April, 1X Dr 20,000 ToBills Payable Ae 20,000 (Being the acceptance given toX) July,4 |” Bills Payable Ave Dr 20,000 ToCash’BankA‘e 20,000 ‘(Being paymentmade ‘ondatefmaturity) 9 Feuide.commyCBSEguide.com (Case- 1) In the books of Z (Endorsee) Journal Date | Particulars LE] De [Ge z x 2017 May,4| BillsReceivableAe Dr 20,000 To X 20,000 ‘Being bill received trom X ‘hrough endorsement) July,4 | “CashBank Ale Dr 20,000 ToBills Receivable Alc 20,000 ‘Being payment received againstbill) B. When Rillis dishonoured on date of maturity. Case I~ Bill isretained ay the drawer till date of maturity ‘Transaction | In the Books of Tn the Books of Drawer Drawee Whenbills Drawee De BillsPayableAic Di dishonoured ToBills Noting charges Ae Dr Receivable Ae To Drawer Tocash A/e( with (Being bill cshonured) noting charges) (Beingbilldishonoured) Note Entry passed in the book of Drawee will be SAME in all cases, Cass II = Billis discounted by the drawer from his bank, the following entry is, passed, atthe ime of maturity, ifthe ills dishonoured. In the books of DRAWER Date] Particulars LE] Dr cr Drawer Dr. “To lank Alc ‘ncluding nating charges) ‘Being bill discounted from bank dishonoured ) 92Case IL1- When bill is endorsed in favour of a creditor (Atthe time of Dishonour ofa Bill) myCBSEguide.com In the books of DRAWER Date | Particulars LE. De Ce z x Drawee Dz ToEndorsce (Cloctudingnoting charges) (Beingbill dishonored, earlier endorsedin favour ofereditor) (Atthe time of Dishonour of a bill) In the books of ENDORSEE Date | Particulars LE. De ro z z Endocr De ToBills ReesiableAle To Cash AVe (Noting charges) (Being ill dishonoured received ‘through endorsement) Case IV- When Billis sent for collection to Bank (Atthe time of Dishonour of a Bill) In the books of DRAWER Date | Particulars LE] Dr Cr z z Drawee Dr ToBills Sent for Collection Ae To Bank Alc (Noting charges) (Being bil sentto bank for collection, dishonoured)decom Notes? 1, Same Entry is passed in the books of Drawee at the time of dishonour of bill 2, Inthebooks of Drawer {(Atthe time of Dishonour of Bill) Drawee Dr (inall Cases) ToBillsReccivable Ale (Case-D ToCash Mie (Noting Charges) OR To Bank A’e (Case-ID) ‘ncludingnoting Charges) oR ToEndorsee Ale (Case-It) Ancludingnoting charg oR ‘ToRills Sent for Collection To Bank A‘e (Noting Charges) (Case-TV) lustration 6 ‘Asold good to B on April 1, 2011 for g 20,000 om credit and drew upon hima bill or the same amount payble after 3 months. B accepted the bill and resumed intoto ‘A.Ontte due date bill was dishonoured. ass Joumal entries in the books of Aand Bif Case 1: Billisretained by A till the date of maturity, Case I : Billis discounted by A from his bankon 4th April, 2011 @6% per anaum. Case IT : Billisendorsed in favour of C on April, 4th, 2011, Case IV : Billsentto bank for collection on July 1, 2011 Solution : Inthe books of A (Drawer) Journal Date | Particulars LE] De G x mm April |B Dr, 20,000 To Sales Ave 20,000 (Being goodssoldto B oncredit) 94April, Bills Receivable Ale ToB (Being bill received trom B) Dr. July, 4 (Case-I: When billis retained by A B ToBills ReosivableA‘e (Being bill received from B dishonoured). Dr. April, f (Case- IT: When billis discounted from the Bank Bank Ale Discounting Charges Ale ‘ToBills ReceivableA‘e Dr, Dr. (Being bill discounted from the ‘bank ; discounting charges are 63 =2000x5 x5 = 9 300) 100 "12 July, 4 B ToBank (Beingbill discounted from, Dr. dlishonoured on date of maturity) April, Case- in favour of To Bills Receivable Ave 7 When billis endorsed Dr, (Being bill endorsed in favour of C) July, 4 B ToC Dr. (Being bill received from B and endorsed to C dishonoured. ‘maturity date) Case-1V collection Vien billis sent for 20,000 20,000 19,700 300 20,000 20,000 20,000 20,000 20,000 20,000 20,000 20,000 20,000 myCBSEguide.comTaly,T | Bill Seat Tor Collection ATeDe 70,000 ToBills Receivable Ave 20,000 (Being bill received from B sent for collection July, [B De 20,000 ‘ToBills Sent for Collection AVS 20,000 (Being bill sent fr ollectionto bank, clishonoured on date of maturity) Tn the Books of B (DRAWER) (dn All Cases Date] Particulars LE. De | & lo April, | Purchases Are Dr. 20,000 ToA 20,000 (Being goods purchased on credit) Apri [7A Dr 20,000 ToBillsPayble Ave 20,000 (Being acceptance givento A) July,4 | “Bills Payable Ae Dr 20,000 ToA 20,000 (Being bill Payableto A dishonoured on date of atuty) TMiustration 7 ‘Asold goods toto B en May Ist, 2011 for 30,000 on credit and drew wpon him bill forthe same amount payable after 2: months. B accepted the bill and retumed it to. On date of maturity fails to make payment of bill. Noting charges amounted to 100. an Journal Entries in the books Of A and B if. Case 1: Aretainsthe bill il the date of maturity and also paid the noting charges. Case 2: Adiscounts the bill from his bank on 4th June @ 12% per annum. Noting charges has been paid by bank. Case 3: Aendorsesthe billn favour of Con June IC paid the noting charges. Case 4: A sents thebill his bank for collection on July 1. Bank paid the noting charges. 96myCBSEguide.com Solution In the Books of A (DRAWER) Date | Particulars LE Dr G z z 2011 May, 1] B Dr. 30,000 To Sales A’e 30,000 (Being goods old to Bon Credit) May, 1| Bills Receivables Ale Dr 30,000 ToB 30,000 (Being acceptance received fromB) Case 1: When A retains the bill July,4 |B Dr. 30,100 ToBills Reccivable Ate 30,000 To Cash Ale 100 (Being bill dishonourted and noting charges paid by A) Cas 2: When billis discounted from the bank June, 4] Bank A‘e Dr. 29,700 Discounting Charges Ale Dr, 300 ToBillsReccivable Ate (Being bill discounted from 30,000 thebank, discounting charges amountedto ot = 3000" 74> = 300) July,4 |B Dr. 30,100 ToBank Alc 30,100 (Being bil discounted from bank dishonoured and noting charges ped by bank) 97June,1 July July, July,4 Case +: When bill is endorsed in favour of C c Dr. ‘ToBills ReceivableA‘e (Being ill sentto bank for collection) B De ToC (Being bl received from B andendorsed to C dishonoured onmaturity ‘Cash 4: When bill is sent for collestion BillSent forCollectionA’e Dr. ToBills Receivable Ave (Being bill sentto bank forcollection) B Dr. To Bills Sent for Collection Ale ToBank (Being bill received fromB dlishonoured on maturity) 30,000 30,100 30,000 30,100 30,000 30,100 30,000 30,000 100 In the Book of B (DR: (Un all Cases) AWEE) Date Particulars LE Dr. Cr 301 May, 1 Purchases A/e Dr, ToA. (Being goods purchased fom A) 30,000 30,000 98 myCBSEguide.commyCBSEguide.com May,T] A Dr 30,000 ToBills Payable Alc 30,000 (Being acceptance given toA) July,4 | Bills PaybleAve Dr 30,000 Noting Charges Ale Dr. 100 ToA 30,100 (Beingbill dishonoured and noting charges debited) C Renewal of a Bill Transaction In the Books of In the Books of Drawer Drawee Canelling the | Drawee Dr BillsPayableA’e Dr Original Bill ToBills Receivable Ale ToDrawer (Beingthecancellationof bill | (Being thebill payable receivable) cancelled) Recording | Drawee De Incerest AE Dr Interest for Tolnterst Ale To Drawer extended Period] (Beinginterest charged for extended period) (Being imerest payable for extended period) Part Payment | CashorBank Ale Dr, Drawer Dr. Received/ made] ToDrawee ToCash Bank Alc (Being thepart payment (Being the part payment received) made). New Bill Drawn) Bills ReceivableA‘e Dr. Drawer Dr, Accepted ToDrawee ToBills Payable Ale (Beinganew bill drown) (Being ancwbill accepted.) (ote? h. NoEntry for noting charges because both the pa Rate of interest mustbe carefully noticed thatitis in %perannum considered, passed at the time of cancellation of original are mutually agreed to cancel the old bill. ‘When rate of interest is given in % form time extended for payment is not (Time is important) 99(Example: Abillis renewed for a period of 3 months. Amount of old bill eancelled is 50,000, Find the amount of interest forthe extended period if, ‘ase I Rate of Interest is 8% per annum, ‘ase LI Rate ofnterestis 6%. olution : Case : Mlustration-8: On IstApril, 2011 Anil accepts abill drawn by Sunil for2 months for @ 15000, in payment ofa debt. On the date of maturity bill was dishonoured and Sunil had to pay ‘9 150asnoting charges. On 4th June201 1, Anil requested to Sunilto draw a new bill forthe amount due. Sunil agreed to draw a new bill or 73 days but he charged interst @15% per annum in eash, This bill is duly met on its maturity. Pass Journal entries in the books of both the parties. Solution : In the books of Sunil Journal Date | Particulars LE] De | ce x x 2011 Apri, 1 | Bills Receivable Ale De, 15,000 ToAnil 15,000 (Being acceptance received) June, 4 | Anil De: 15,150 ToBillsReceivable Ale 15000 ToCash Ave 150 ‘Being bill dishonoared and noting charges paid) 100Tune, 4] June, 4} June, 4} Aug. 19] “Aal Dr. To interest A/c (Being imterestcharged =15150x 15,3) 100" 365 Cash Ale Dr. ToAnil (Being interest received in cash) Bills Receivable Ale Dr To Ail Being new bill drown M Aniland aceepatance received) Bank Ale Dr. ‘ToBills Receivable Ave (Being amount received on maturity ofbill) 454,50 454,50 15,150 15,150 454,50 454.50 15,150 15,180 In the Books of Anil (DRAWEE) Journal Date Particulars LE ro 2011 Apel, June,4 June,4 Sunil De ToBills PayableAle (Being acceptance gsve) Bills Payable Ale Noting Charges Ae ToSunil (Being bill dishonoured and noting charges due) TuterestAe Dr ToSunil (Being interes payable to Sul) gy 15,000 15,000 180 454,50 15,000 15,150 454.50 101 myCBSEguide.comJune, 4] Sul De. 454.50 ToCash ale 454,50 (Being interest paid in cash) June, 4|“Sual De 15,150 ToBills Payable Ale 15,150 (Being acceptance of new bill given) Aug. 1 Bills Payable Ale Dr, 15,150 ToBank Alc 15,150 (Being bill accepted, paid on manurty) Mustration 9 Psold goods to Q fort 10,000 on January 1, 2411 and onthe same day draws a bill on @ for the same amount for 3 months. Q accept it and retums itt P, who discounts it on 10th January, 2011 with his bank for % 9850. The acceptance is dishonoured on the due date and the noting charges were paid by bank being 50. ‘On 4th April, Q paid %2,050 (including noting charges) in cash ane accepted a new bill at3 months forthe amount due to Ptogether with interst @ 12% per annum. ‘Make Journal Entries in the books of P and Q to record these transactions. Soluti Journal of P Date | Particulars LE] Dr Ce z z 2011 Jan.,1] Q Dr 10,000 To Sales Alc 10,000 (Being goods sold to Q) Jian., 1 | Bills Receivable Ale De. 10,000 ToQ 10,000 (Being acceptance received) Jfan,, 10) Bank Ale Dr. 9,850 DiscountingChargesAle Dr. 150 ToBills Receivable Ave 10,000 (Being bill discounted frorn Bank) 102 decomdecom [April] Dr 10,050 ToBank 10,050 (Being bill discounted frombenk dishonoured and noting charges paid by bank) April] Cas Ale Dr 2050 TQ 2050 (Being part payment received in cash) April, s|_Q Dr. 240 Tointerest Ale 240 (Being interest charged 7800042... 100" 12 April, 4) Bills Receivable Ale De 8240. TQ 840 (Beinga new bill drawn on. together with interest) Journal of Q (DRAWEE) Date | Particulars LE] Dr & x x 2011 Jan,,1| Purchases A/c Dr. 10,000 ToP 10,000 (Being goods purchased on credit) Jan 1?) Dr 10,000 ‘ToBills Payable A’e 10,000 (Being acceptance given to P) Apri) Bills Payable Ale Dr 10,000 Noting Charges A’e Dr 50 ToP 10,050 (Being bill dishonoured and noting charges due) 103fApeay] P Dr 2,050 ToCashave 2,050 (Being part payment made incash) Aprl.4 [Interest Ae Dr 240 ToP 240 (Being interest payable on outstanding ‘amount for3 months) Apel, [P Dr 8240 ToBills Payable Ale 8240 (Being acceptance giventoP) D. Retiring abill under Rebate ‘Transaction In the Books of Tn the Books of Drawer Drawee, When Drawee| — CasiiBankA‘e Dr. BillsPayableA‘e Dr. retires the bill | Rebate Ave Dr. ToCashiBank Ave before date of ToBillReveviable Ale | ToRebate Ae maturity (Being heamountreceived | (Being theamountpaid before date of maturityand | beforedateofmaturity and rebate allowed. rebate reccived.) Note: 1. In the books of Drawer, Rebate Account is DEBITED because itis a lossfor Drawer. 2. Inthe books of Drawee, Rebate Accountis CREDITED becuase itisa gain for Drawer. lustration 10 “Mukesh sold goods to Fitender on July 1, 2011 for € 30,000 and drew a bill for the same amount for 3months, Jtender accepted the bill and retumed it to Mukesh Jitender retired his acceptance on 4th August, 2011 under rebate of 8% per annum, Give Journal entries in the books of Mukesh and Jitender. osSolution : (Being acceptance given to Mukesh} Inthe books of MUKESH. Journal Date | Particulars LE G x x 2011 July,1 | Jitender Dr, 30,000 ‘To Sales Ae 30,000 (Being goods sold on credit) July,1 | BillReceivableAle Dr 30,000 Toditender 30,000 (Being acceptance received) Aug,4 [CashAle Dr. 29,600 Rebate Ale Dr, 400 ‘ToBills Receivable Ae 30,000 (Beingamountreecived onbill, ‘before maturity and rebate allowed, 28 Rebate= 230,000 xT = 400) In the books of SITENDER Journal Date] Particulars LE] De x x 2011 July, | Purchases Ae Dr. 30,000 ‘To Mukesh 30,000 (Being goods purchased on credit) July, | Mukesh Dr. 30,000 ‘ToBillsPayable Ale 30,000 tos‘Aug.4 | BillPayableAe Dr. 30,000 ToCash Ale 29,600 ‘ToRebate A’e 400 ‘(Being accepiance retired wit rebate) E,_ Insolvency of Acceptor: ‘Transaction Tn the books of Tn the books of Drawer Drawee When Drawee! Entry fordishonouroftill | BillsPayableAfe Dr is Insolvent shall be passed (depending ToDrawer ‘uponthe case) (Beingbilldishonowred) When nothing] Bad Debts A/e Dr. | Drawer De. could be ToDrawee Recovered (Beingamountof Bill ‘To Deficiency Ave written off as bed debts) o ToP&LAC (Being the amountof bill written off) When Amount] Cash/Bank Ade Dr. | Drawer Dr is Received Bad Debts A/e Dr. ToCashAlc Partially ToDrawee ‘ToDeficieney Alc Tora LW (Being the amount received partially| (Being the amount payable ‘and the reamining amount wrtten| settled by payment of....% offductoinsolvency ofdrawer) | only. Mustration-11 Rajiv sold goods to Pankaj for 40,000 on January Ist, 2011. On the same date Rajiv drew abill ofthe same amount at3 month on Pankaj. The bill was accepted by Pankaj. Rajiv discounted the bill with his bank on 4th February, 2011 @ 12% perannum, Ondate-of maturity, the bill was dishonouredand noting charges* 200 were paid by bank. 106myCBSEguide.com Pankaj agreed to pay @10,200 and acepted another bl forthe remaining amount for 3 months together wih interest @ 9% per annum. On July 4, 2011, Panksj becomes insolvent anda first and final dividend of 60 paise in a rupee was received ‘rom his private estate on 15th July, 2011 Give Journal Entries inthe books of Rajiv and Pankaj Solution In the Books of RAJTV (DRAWER) Journal Date | Particulars TE] bn | & x x 2011 Jan, | Pankaj Dr 40,000 ToSales Ale 40,000 (Being goods sold on credit) san, | “BillReceivableAe Dr 40,000 To Panks 40,000 Being acceptance received) Feb, 4 | BankAle Dr 39,200 DiscouncingChargesAle Dr: 800 ToDillReceivable Ne 40,000 (Beingbil discounted from bank ind discounting charges are® 800 40900%2 2) 2 Aprils |” Panky Dr 40,200 ToBank Ac 40200 (Being bill dishonouredand noting charges paid by bank). 107myCBSEguide.com [April,4 | Cash Ave Dr 10,200 ‘ToPankaj 10,200 (Being part payment received from Pankaj) JApril,a | Panky Dr 615 ‘Tolmterest Ave 675 (Being Interest charged on remaining amount: 30000? 3.5 100 “12 April, | Bills Receivable Ave Dr 30,675 To Pankaj 30,675 (Being new acceptance received) July,4 | Paneaj Dr 30,675 ToBills Receivable Ale 30,675 (Being bill dishonoured dueto insolvency of Pankaj) July, 15 [Bankave Dr T8405 Bad Debts Ae Dr, 12,270 To Pankaj 30,675 ‘cing final dividend @ 60 paise in a @ received from Pankaj and balance writen ofTas Bad Debts) In the Books of PANKAJ (DRAWEE) Journal Date Particulars TE] or oF z z OTT Jan,1 | Purchases Ale Dr. 40,000 Rajiv 40,000 (Being goods purchased on credit): 108Jan, 1 Apri, 4| Apri, 4] Apel April July, 4 July, Rajiv ToBills Payable Ale (Being acceptance given) Bills Payable Ave ‘Noting Changes A/c ToRsjiv (Beingbilldishonoured and noting charges dus) Rajiv ToCash Ale (Being partpayment made) Interest Ale ToRsjiv (Being interest duc) Rajiv ToBills Payable Alc (Being thenew acceptance ‘given to Rajiv) Bills Payable Ale ToRajiv (Being bill dishonoured dueto insolvency) ency AS (Being amount paid @ 60 puise ina) gy Dr. 40,000 40,000 200 10,200 61s 30,675 30,675 30,675 40,000 40,200 10,200 615 30,675 30,675 18,405 12,270 109= Points to Remember: 1, When calculating Date of Maturity the fallowi considered: points must be (In case of “Bill at sight” or “Bill on demand” 3 days of grace are NoTallowed, (i) Whenthe term of bill is mentioned inno of days, then © Dateofdrawing the bill isnotineluded, © Dateofpaymentis included in determining date of maturity © Ifdate of maturity falls on a day which is public holiday, the maturity date the bill shallbe “PRCEDING DAY © If maturity date is on an emergent holiday declared under the Negotiable Instolement Act. 1881, the next working day immediately after the holiday will be considered as the date of maturity. (ii) When the period is stated in months the date of maturity shall be calculated in terms of calender months ignoring the no. of day's in a month, Noting Charges : (i) Noting chargesarenotan expense for the drawer. (i) Itisalways debitedas Noting charges’ in the books of drawee. (ii) Noting chargesare recovered by drawer from drawee. (iv) Noting charges are paid only when not thetime of DISHONOUR of bill (¥) Noting of the bill is NOT required when the bill is CANCELLED With the mutual consent of both the parties, specially atthe time of RENEWALofBill, 1g ofthe bil myCBSEguide.com 1 mpi eifr BSE