PRINCIPLES OF ACCOUNTANCY BILLS OF EXCHANGE AND PROMISSORY NOTES JOURNAL ENTRIES IN BILL OF EXCHANGE

PREPARED BY, P.M.LOHITH I B.COM A

Bills of exchange Honouring the bill

1. When bill is retained by drawer
Books of drawer a) For sale of goods Drawee A/c Dr To sales A/c b) At time of acceptance bills receivable A/c Dr to drawee A/c cash/bank A/c Dr to bills receivable A/c drawer A/c Dr to bills payable A/c bills payable A/c Dr to cash/bank A/c Books of drawee For purchase of goods purchase A/c Dr to drawer A/c

c) on receiving the payment on the due date

2) When bill is discounted with a bank a) For receiving cash from bank on discount of a bill Cash A/c Dr Discount A/c Dr To bills receivable A/c b) On the payment of bill by drawee to bank on due date --------

Bills Payable A/c Dr ---------To cash A/c

3) When bill endorsed to third party Drawer Endorsee A/c Dr To B/R A/c drawee -----endorsee B/R A/c Dr to endorser A/c a) Time of endorsement

b) When payment is made by acceptor on due date -----B/p A/c Dr To cash A/c 4) bills sent for collection a) when bill is sent for collection to the bank Books of drawer Bills sent for collection A/c Dr To B/r A/c -----b) when bill is realised by bank on the due date and collection charges there on bank A/c Dr collection chrgs A/c Dr to bills for collection A/c B/p A/c Dr to cash A/c Books of drawee cash A/c Dr to B/r A/c

Dishonour of bill
1) when the bill is retained by the drawer is dishonoured Drawee A/c Dr To B/r A/c To noting chrgs A/c B/p A/c Dr noting chrgs A/c Dr to drawer A/c

Note: the noting chrgs is paid by drawer and later it is collected from drawee. 2) when the bill discounted with bank is dishonoured Drawee A/c Dr To bank A/c B/p A/c Dr noting chrgs A/c Dr To drawer A/c 3) when bill endorsed to a third party is dishonoured Drawer Drawee A/c Dr To endorsee A/c endorsee Drawer A/c Dr to B/r A/c To cash A/c 4) when bill sent for collection is dishonoured Books of drawer Drawee A/c Dr books of drawee B/p A/c Dr drawee B/p A/c Dr noting chrgs A/c to drawer A/c

To bills sent for collection A/c noting chrgs A/c Dr

To bank A/c

to drawer A/c

Retiring a bill under rebate

Cash A/c Dr Discount A/c Dr To B/r A/c B/p A/c Dr to cash A/c to rebate A/c

Insolvency of the acceptor

Cash A/c Dr Bad debts A/c Dr To drawee A/c drawee A/c Dr to cash A/c to deficiency A/c

Renewal of bill
1) at the time of cancellation of old bill Drawer A/c Dr To B/r A/c 2) payment a) in cash cash A/c Dr to drawee A/c b) for interest receivable on renewal i) if recd in cash cash A/c Dr interest A/c Dr drawer A/c Dr to cash A/c B/p A/c Dr to drawer A/c

to interest A/c ii) if included in new bill drawee A/c Dr to interest A/c c) new bill received after acceptance B/r A/c Dr To drawee A/c

to cash A/c interest A/c Dr to drawer A/c drawer A/c Dr to B/p A/c

Accommodation bills / kite bills

Assuming A and B agreed for mutual accommodation Books of A 1) when bill accepted by B B/r A/c Dr To B A/c 2) when bill is discounted with the bank Bank A/c Dr Discount A/c Dr To B/r A/c 3) when the drawer alone uses accommodation facility. a) on the due date of bill for cash to be sent by A to B -------A A/c Dr to B/p A/c Books of B

B A/c Dr To cash A/c b) honouring the bill B/p A/c Dr To cash A/c

cash A/c Dr to A A/c

4) when drawer and drawee uses the accommodation facility equally or in the agreed ratio a) for sending B share to him by A after discounting the bill A A/c Dr To cash A/c To discount A/c B A/c Dr To cash A/c c) for honouring the bill B/p A/c Dr ------to cash A/c 5) if before due date a second bill drawn by B on A, to discount it and honour the first bill and share the proceeds in same old ratio. a) for accepting new bill B A/c Dr B/r A/c Dr cash A/c Dr discount A/c Dr to A A/c cash A/c Dr to A A/c

b) on due date for cash to be sent by A to B

To B/p A/c b) for discounting new bill -------

to A A/c bank A/c Dr Discount A/c Dr To B/r A/c

c) for honouring the first bill (old bill) ------B/p A/c Dr To cash A/c d) for sending A share for any balance left cash A/c Dr discount A/c Dr to B A/c e) on due date for cash sent to A by B cash A/c Dr to B A/c f) for honouring the 2nd bill B/p A/c Dr To cash A/c 6) insolvency of one of the parties a) if drawer of a pending bill, becomes insolvent Books of A i) drawer does not send his Books of B Drawee has to honour the ------A A/c Dr to cash A/c A A/c Dr to cash A/c to discount A/c

share to drawee ------ii) drawers estate pays a proportion of amount due B A/c Dr To cash A/c To deficiency A/c Books of A i) drawer need not send his share to drawee because of drawee insolvency B A/c Dr To bank A/c cash A/c Dr bad debts A/c Dr to Bs A/c

pending bill by paying the full amount by him B/p A/c Dr To cash A/c drawee receives a portion of amount due cash A/c Dr bad debts A/c Dr to A A/c Books of B on due date drawee dishonour of the bill B/p A/c Dr to A A/c A A/c Dr to cash A/c to deficiency A/c

b) if drawee of pending bill becomes insolvent

ii) Drawees estate pays a portion of amount due

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