Kerala HSE (SCERT) · Class 11 · Accountancy (with AFS)
Unit 3 · Chapter 2 · Adjustments, Errors & Final Accounts

Bills of Exchange

Bills of exchange turn a buyer's credit promise into a legal document the seller can discount for cash today — once you understand the lifecycle of a bill, journal entries across discounting, endorsement, dishonour, and renewal will feel logical rather than memorised.

Bills of exchange are still used in Indian trade — especially in textiles, agriculture, and manufacturing — and questions on discounting, endorsement, dishonour, and renewal appear in almost every Kerala Plus One board exam; mastering the lifecycle now also builds the foundation for partnership and company accounts in Plus Two.

Concept

Quick myth-check

Lots of students think…

"A bill of exchange is just another word for an invoice — both are documents you issue after a credit sale."

Actually…

An invoice is simply a record of the sale. A bill of exchange is a negotiable instrument under the Negotiable Instruments Act, 1881 — it can be discounted at a bank for immediate cash, endorsed to settle your own debts, or transferred to a third party. An invoice can do none of these things.

By the end of this, you will understand what a bill of exchange is, why businesses use it, and exactly what happens in the accounts when a bill is discounted, endorsed, dishonoured, or renewed.

What Is a Bill of Exchange?

A bill of exchange is a written legal order from a seller telling a buyer: 'Pay me (or pay this person) a fixed amount by this date.' It is not just a record of a sale — it is a legally enforceable document under India's Negotiable Instruments Act, 1881. That legal status is what makes it so powerful.

Real-life example

Riya sells ₹50,000 worth of silk sarees from her Surat shop to a Mumbai retailer on 90-day credit. Instead of just sending an invoice (which has no legal muscle), she draws a bill of exchange ordering the retailer to pay ₹50,000 in 90 days. If the retailer refuses to pay, Riya can take them to court — the bill is proof.

Three Parties — Drawer, Drawee, Payee

Every bill involves three roles. The drawer is the seller who writes the bill and orders payment. The drawee is the buyer who is ordered to pay. The payee is whoever will actually receive the money — often the same as the drawer, but not always. The bill only becomes legally binding once the drawee writes 'Accepted', signs it, and dates it.

Real-life example

Rahul (drawer) in Kollam supplies cashews to a supermarket (drawee) in Thiruvananthapuram. He draws a bill ordering the supermarket to pay ₹1,20,000 in 60 days. The supermarket manager writes 'Accepted' on the bill and signs it. Now it is a legal obligation — the supermarket must pay.

Discounting — Get Cash Today

After the drawee accepts the bill, the seller does not have to wait 60 or 90 days for the money. They can take the bill to a bank, hand it over, and get cash right now — minus a small fee called the discount. The formula is: Discount = Face Value × Rate × Time. The bank waits and collects the full amount from the drawee on the due date.

Real-life example

Rahul's accepted bill is for ₹1,20,000 due in 60 days. South Indian Bank discounts it at 9% per annum. Discount = ₹1,20,000 × 9/100 × 60/365 = ₹1,775. So Rahul gets ₹1,18,225 in his account that same afternoon. The bank collects ₹1,20,000 from the supermarket 60 days later and keeps ₹1,775 as its profit.

Endorsement — Pay a Debt Without Cash

Instead of going to a bank, the bill-holder can transfer the bill to someone else by endorsing it — signing the back of the bill and passing it to another person. This is a smart way to settle your own debt without spending any cash. Whoever holds the bill at the end can collect the money from the drawee on the due date.

Real-life example

Rahul owes ₹1,20,000 to his packaging supplier, Anand. Instead of paying Anand in cash, Rahul endorses the accepted bill — he signs the back and hands it to Anand. Now Anand is the holder and will collect ₹1,20,000 from the supermarket on day 60. Rahul's debt to Anand is settled without a single rupee leaving his bank account.

Dishonour — When the Drawee Does Not Pay

If the drawee refuses or fails to pay on the due date, the bill is dishonoured. The holder — whether the original seller or the bank — immediately has the right to recover the full amount from whoever gave them the bill. The important rule: even after accepting a bill, the original drawer always keeps contingent liability — meaning if the drawee fails, the holder can go back to the drawer.

Real-life example

Suppose on day 60 the supermarket cannot pay the ₹1,20,000. The bank had discounted Rahul's bill, so the bank immediately debits ₹1,20,000 from Rahul's account. Rahul now has a claim against the supermarket — but he must pay the bank first. This is the sting of contingent liability.

Renewal and Accommodation Bills

If the drawee genuinely cannot pay on the due date, the parties can agree to cancel the old bill and draw a new one — this is called renewal. The new bill usually adds interest for the extra time. Separately, an accommodation bill is drawn not for a real sale but just to raise cash — two friends draw on each other, discount the bill, split the money, and settle before the due date.

Real-life example

Arun and Biju are friends who both need short-term funds. There is no actual sale between them. Arun draws a bill on Biju for ₹80,000, Biju accepts it, and Arun discounts it at a bank for ₹78,000. They split the ₹78,000 and agree to arrange repayment before the bill falls due. This is an accommodation bill — the key difference is that no goods changed hands.

Notes

Exam-ready notes · fact-checked

A bill of exchange turns a buyer's informal credit promise into a legal, transferable document. That matters because the seller no longer has to wait for the due date — the bill can be discounted at a bank for cash today. This chapter covers the three parties, acceptance, the four things a holder can do with a bill, and the entries for discounting, endorsement, dishonour and renewal. Note: Bills of Exchange remains part of the Kerala SCERT Plus One syllabus.

Key terms & definitions

Bill of exchange
A written, unconditional order signed by the maker, directing a person to pay a certain sum of money to a specified person or to the bearer, on demand or at a fixed future date.
Drawer
The creditor — usually the seller — who writes the bill and orders payment.
Drawee
The debtor — usually the buyer — on whom the bill is drawn and who is ordered to pay.
Payee
The person who is to receive the money. Often the drawer and payee are the same person, but not necessarily.
Acceptance
The drawee's signature on the bill signifying agreement to pay. A bill becomes legally binding only when accepted.
Bills Receivable
In the drawer's books, an accepted bill held as an asset — the right to receive money on the due date.
Bills Payable
In the drawee's books, an accepted bill representing a liability — the obligation to pay on the due date.
Discounting a bill
Transferring a bill to a bank before maturity in exchange for immediate cash, less a discount charge for the unexpired period.
Endorsement
Transferring a bill to a third party — usually a creditor — by signing on its back, so that the creditor collects the amount instead.
Days of grace
Three days added to the nominal maturity of a time bill under the Negotiable Instruments Act, 1881, to arrive at the legal due date.
Dishonour
Failure or refusal by the drawee to pay the bill on its due date, which revives the original debt and any noting charges.
Accommodation bill
A bill drawn and accepted purely to raise finance between parties, with no underlying sale of goods. A genuine trade bill, by contrast, arises from an actual transaction.

The problem a bill solves

  • You sell fabric worth ₹50,000 on credit; the retailer will pay only after 90 days, but you need cash now for your next purchase.
  • An ordinary credit sale gives you only a book debt — you must wait, or plead.
  • A bill of exchange converts that debt into a LEGAL, TRANSFERABLE instrument with a fixed date.
  • Because it is transferable, a bank will buy it from you today for slightly less than face value.
  • So the bill solves a timing problem: the buyer keeps his credit period, and the seller gets his cash.

The three parties

  • DRAWER — the creditor, usually the seller, who writes the bill and orders payment.
  • DRAWEE — the debtor, usually the buyer, who is ordered to pay.
  • PAYEE — whoever is to receive the money; frequently the drawer himself, but it may be a third person.
  • The bill becomes binding only on ACCEPTANCE — the drawee signs across it, agreeing to pay.
  • Until acceptance, the document is merely an order the drawee has not agreed to.

Bill of exchange versus invoice — not the same thing

  • An INVOICE is a statement of what has been sold and what is owed. It is evidence of a transaction.
  • A BILL OF EXCHANGE is an unconditional ORDER TO PAY, accepted by the debtor, and is a negotiable instrument under the Negotiable Instruments Act, 1881.
  • An invoice cannot be discounted at a bank or endorsed to a creditor; an accepted bill can.
  • An invoice carries no acceptance and no fixed legal due date with days of grace.
  • Confusing the two is a common error — an invoice records a sale, a bill finances it.

Calculating the due date

  • For a bill payable a stated number of days after date, count the days from the date of drawing, EXCLUDING that date.
  • To the date so arrived at, add THREE DAYS OF GRACE under the Negotiable Instruments Act, 1881, to get the legal due date.
  • For a bill payable a number of MONTHS after date, take the corresponding date in the later month, then add three days of grace.
  • If the due date falls on a public holiday, the bill matures on the PRECEDING business day.
  • Always state in your working whether you have included days of grace.

What the holder can do with a bill

  • RETAIN it until maturity and collect the full amount from the drawee.
  • DISCOUNT it with a bank before maturity, receiving cash now less a discount charge.
  • ENDORSE it to a creditor in settlement of what the holder owes him.
  • SEND IT FOR COLLECTION through the bank, which collects on the due date on the holder's behalf.
  • The choice determines which journal entries are required — this is what most exam questions test.

Discounting — worked example

  • Rajesh, a fabric wholesaler, sells ₹50,000 of goods to Priya Textiles on 1 January 2024 and draws a 90-day bill, accepted on 2 January.
  • On 15 February he discounts the bill with HDFC Bank at 12% per annum. The unexpired period to maturity is 45 days.
  • DISCOUNT = ₹50,000 × 12/100 × 45/360 = ₹750.
  • CASH RECEIVED = ₹50,000 − ₹750 = ₹49,250.
  • ENTRY: Bank A/c Dr. ₹49,250; Discount (Discounting Charges) A/c Dr. ₹750; To Bills Receivable A/c ₹50,000.
  • The discount is a FINANCE COST borne by the drawer — it is charged to the Profit & Loss Account.
  • IMPORTANT: discounting does NOT reduce what the drawee owes. Priya still owes the full ₹50,000, but now to the bank.

When the bill is honoured after discounting

  • If the drawee pays the bank directly on the due date, the drawer passes NO ENTRY.
  • The reason is that the drawer already removed the bill from his books when he discounted it.
  • So in the Rajesh example, when Priya pays the bank on the due date, Rajesh records nothing.
  • This 'no entry' point is frequently tested and frequently missed.
  • It is only on DISHONOUR that the drawer must record something again.

Dishonour and the drawer's continuing liability

  • Dishonour means the drawee fails or refuses to pay on the due date.
  • If the bill was DISCOUNTED, the bank recovers the amount from the drawer, who must then recover it from the drawee.
  • ENTRY in the drawer's books: Drawee's Personal A/c Dr. (face value + noting charges) / To Bank A/c.
  • The original debt is thus REVIVED — the drawee once again appears as a debtor.
  • NOTING CHARGES are the fee paid to a notary public to record the dishonour officially; they are borne ultimately by the drawee and added to his account.
  • This is why acceptance does NOT release the drawer: if the drawee defaults, the drawer remains liable to whoever holds the bill.

Renewal of a bill

  • If the drawee cannot pay on the due date, he may request that the old bill be cancelled and a fresh bill drawn for a later date.
  • The old bill is cancelled and the drawee's personal account is debited with its amount.
  • INTEREST is usually charged for the extended period, either paid in cash or added into the new bill.
  • A new bill is then drawn and accepted for the revised amount.
  • Renewal is a mutual agreement made BEFORE dishonour — it is not the same as dishonour.

Accommodation bills

  • Arun and Biju, two friends in business, draw a bill on each other with NO underlying sale, purely to raise money.
  • Arun draws on Biju, Biju accepts, and Arun discounts the bill at a bank; the cash is shared as agreed.
  • Each party must remit his share before the due date so the acceptor can meet the bill.
  • The entries mirror a trade bill, except that the proceeds are SHARED and there is no Sales or Purchases entry.
  • A TRADE bill arises from a genuine sale of goods; an ACCOMMODATION bill exists only to provide finance.

Formulas & formats

  • Discount on a bill: Discount = Face Value × Rate % × (Unexpired period ÷ 12 months or 360 days) Example: 50,000 × 12% × 45/360 = ₹750
  • Due date: Due date = Date of drawing + stated period (excluding the date of drawing) + 3 DAYS OF GRACE (If it falls on a public holiday, the bill matures on the PRECEDING business day)
  • Key entries in the DRAWER's books: On sale : Drawee A/c Dr. / To Sales A/c On acceptance : Bills Receivable A/c Dr. / To Drawee A/c On discounting : Bank A/c Dr. + Discount A/c Dr. / To Bills Receivable A/c On honour (if discounted) : NO ENTRY On dishonour : Drawee A/c Dr. (incl. noting charges) / To Bank A/c
  • Key entries in the DRAWEE's books: On purchase : Purchases A/c Dr. / To Drawer A/c On acceptance : Drawer A/c Dr. / To Bills Payable A/c On payment : Bills Payable A/c Dr. / To Bank A/c On dishonour : Bills Payable A/c Dr. + Noting Charges A/c Dr. / To Drawer A/c
  • Bills Receivable (asset, drawer's books) ↔ Bills Payable (liability, drawee's books)

Important questions & model answers

Define a bill of exchange and name the three parties to it.

3 marks
  • A bill of exchange 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.
  • DRAWER — the creditor who writes the bill and orders payment, usually the seller.
  • DRAWEE — the debtor on whom the bill is drawn and who is ordered to pay, usually the buyer.
  • PAYEE — the person entitled to receive the amount; often the drawer himself.

Distinguish between a bill of exchange and an invoice.

3 marks
  • NATURE: An invoice is a statement of goods sold and the amount due; a bill of exchange is an unconditional order to pay a fixed sum on a fixed date.
  • ACCEPTANCE: An invoice requires no acceptance; a bill becomes legally binding only when the drawee accepts it by signing.
  • NEGOTIABILITY: An invoice cannot be discounted or endorsed; an accepted bill is a negotiable instrument and can be discounted with a bank or endorsed to a creditor.
  • LEGAL STATUS: A bill is governed by the Negotiable Instruments Act, 1881, and carries days of grace; an invoice is only evidence of a transaction.

Rajesh sells goods worth ₹50,000 to Priya on 1 January 2024 and draws a 90-day bill, accepted on 2 January. On 15 February he discounts it at 12% p.a., 45 days before maturity. Compute the discount and pass the entry in Rajesh's books.

5 marks
  • DISCOUNT = ₹50,000 × 12/100 × 45/360 = ₹750.
  • CASH RECEIVED from the bank = ₹50,000 − ₹750 = ₹49,250.
  • ENTRY: Bank A/c ......... Dr. ₹49,250
  • Discount A/c .... Dr. ₹ 750
  • To Bills Receivable A/c ₹50,000 — (Being the bill discounted with the bank).
  • The ₹750 is a finance cost to Rajesh and is charged to the Profit & Loss Account.
  • Priya's liability is unaffected — she still owes the full ₹50,000, now payable to the bank.

In the above case Priya pays the bank directly on the due date. What entry does Rajesh pass? Give the reason.

3 marks
  • Rajesh passes NO ENTRY at all.
  • When he discounted the bill he already credited Bills Receivable A/c and removed the bill from his books.
  • The bill is now the bank's asset, and payment by Priya to the bank does not affect Rajesh's accounts in any way.
  • An entry would be required only if the bill were DISHONOURED, because the bank would then recover the amount from Rajesh.

'Once the drawee accepts a bill, the drawer is free of all liability.' Do you agree?

3 marks
  • No, this is incorrect.
  • Acceptance makes the drawee primarily liable, but the drawer remains SECONDARILY liable on the instrument.
  • If the drawee dishonours the bill, the holder — a bank that discounted it, or an endorsee — can recover the amount from the drawer.
  • The drawer must then pay, and recover the amount together with any noting charges from the drawee, whose original debt is revived.
  • So liability shifts in the first instance but does not disappear.

What is meant by discounting a bill? Does it reduce the drawee's liability?

3 marks
  • Discounting means transferring a bill to a bank before its due date and receiving immediate cash, less a discount charge for the unexpired period.
  • It is a short-term financing arrangement between the HOLDER and the BANK.
  • It does NOT reduce the drawee's liability in any way — he still owes the full face value.
  • The only change is the identity of the person to whom he must pay: the bank instead of the original drawer.

How is the due date of a bill determined? Illustrate.

3 marks
  • Count the stated period from the date of drawing, EXCLUDING the date of drawing itself.
  • To that date add THREE DAYS OF GRACE, as allowed by the Negotiable Instruments Act, 1881.
  • Illustration: a bill dated 1 January payable two months after date matures nominally on 1 March; adding three days of grace makes the legal due date 4 March.
  • If the due date falls on a public holiday, the bill matures on the PRECEDING business day.

What are noting charges? Who ultimately bears them?

2 marks
  • Noting charges are the fee paid to a notary public for officially recording the fact that a bill has been dishonoured, so that legal proof of dishonour exists.
  • They are paid in the first instance by the holder of the bill.
  • They are ultimately borne by the DRAWEE, because the amount is added to his personal account along with the face value of the dishonoured bill.

Distinguish between a trade bill and an accommodation bill.

3 marks
  • PURPOSE: A trade bill arises out of a genuine sale and purchase of goods; an accommodation bill is drawn purely to raise finance, with no underlying transaction.
  • CONSIDERATION: A trade bill has consideration behind it; an accommodation bill has none.
  • PROCEEDS: In a trade bill the drawer keeps the proceeds; in an accommodation bill the proceeds are shared between the parties as agreed.
  • ENTRIES: A trade bill involves Sales or Purchases entries; an accommodation bill does not, and each party must remit his share before the due date.

What is renewal of a bill, and how does it differ from dishonour?

3 marks
  • Renewal occurs when the drawee, unable to pay on the due date, requests that the existing bill be cancelled and a fresh bill drawn for a later date, usually with interest for the extended period.
  • The old bill is cancelled by debiting the drawee's personal account, interest is charged, and a new bill is drawn and accepted.
  • Dishonour, by contrast, is the FAILURE or REFUSAL to pay on the due date, with no prior agreement.
  • Renewal is a mutual arrangement made BEFORE maturity; dishonour is a default AT maturity that revives the debt and may involve noting charges.

Exam tips

  • Always state whose books you are writing entries in. The same bill is Bills RECEIVABLE for the drawer and Bills PAYABLE for the drawee.
  • Show the discount computation as a separate line — 50,000 × 12% × 45/360 = ₹750 — before the journal entry. Working carries marks.
  • If a discounted bill is honoured, write 'No entry' and give the reason. Leaving the answer blank scores nothing; the explanation scores.
  • On dishonour, remember to add NOTING CHARGES to the drawee's account, not to treat them as a separate loss.
  • Mention days of grace whenever a due date is asked for — omitting them is a standard error.
  • Do not write that discounting reduces the drawee's debt. It changes only the payee.
  • Note that Bills of Exchange is part of the Kerala SCERT Plus One syllabus — do not skip it on the assumption that it has been removed elsewhere.

Quick revision

  • Three parties: DRAWER (creditor/seller), DRAWEE (debtor/buyer), PAYEE (receiver).
  • A bill binds only on ACCEPTANCE by the drawee.
  • Invoice = evidence of sale; bill = negotiable order to pay, discountable and endorsable.
  • Due date = period from date of drawing + 3 DAYS OF GRACE.
  • Four options for the holder: retain, discount, endorse, send for collection.
  • Discount = Face value × Rate × Time. Rajesh: 50,000 × 12% × 45/360 = ₹750; cash ₹49,250.
  • Bill discounted then honoured → NO ENTRY in the drawer's books.
  • Dishonour: Drawee A/c Dr. (face value + noting charges) / To Bank A/c — the old debt revives.
  • Trade bill = real sale. Accommodation bill = finance only, proceeds shared.
  • Drawer stays SECONDARILY liable even after acceptance.
Follow the bill: from the seller's pen, to the buyer's acceptance, to the bank's cash advance — and back to full payment at maturity.

The full picture

Imagine you sell ₹50,000 worth of fabric on credit to a retailer. You need cash for your next purchase, but the retailer will only pay in 90 days. What do you do? A bill of exchange solves this problem. It is a written, unconditional order from you (the drawer) to the buyer (the drawee) to pay a fixed sum — either to you or to whoever you name as the payee — on or before a specified date. In India, bills are governed by the Negotiable Instruments Act, 1881, so they carry real legal weight: the drawee who refuses to pay can be taken to court.

Three parties appear in every bill. The drawer is the creditor — usually the seller — who writes the bill and orders payment. The drawee is the debtor — the buyer — who is ordered to pay. The payee is whoever receives the money; often the drawer and payee are the same person, but not always. A bill becomes binding only after acceptance: the drawee writes 'Accepted', signs, and dates the bill. Until that moment the bill is just an order with no legal force against the drawee. After acceptance it becomes an enforceable obligation. One common confusion: acceptance does not remove the drawer's contingent liability. If the drawee fails to pay at maturity (dishonour), the holder can claim from the drawer too — so the drawer remains on the hook as a backup even after the bill is accepted.

Once a bill is accepted, the holder has four main choices. First, they can keep the bill and collect the full amount at maturity. Second, they can discount the bill at a bank — hand it over before the due date in exchange for cash now, minus a discount charge calculated as: Discount = Face Value × Rate × Time. The bank then collects from the drawee at maturity; the discount is the bank's profit for taking the risk. Third, the holder can endorse the bill to a creditor, signing the back of the bill and passing the payment entitlement to someone else — a neat way to settle your own debt without using cash. Fourth, the parties may agree to renew the bill if the drawee cannot pay on time: the old bill is cancelled, a new one is drawn (often with extra interest), and accounting entries reflect the change.

What happens when a bill is dishonoured? The drawee fails or refuses to pay on the due date. The holder — whether the original drawer or a bank that discounted the bill — immediately has the right to recover the money. If the bill was discounted and the bank receives no payment, the bank debits the drawer's account for the full amount; the drawer then has a claim on the drawee. This is why tracking who holds the bill at each moment is the key skill in this chapter — it tells you exactly which entries appear in whose books.

There is one more important type: the accommodation bill. Here, two friends in business — say Arun and Biju — draw a bill not because there was any actual sale, but purely to raise funds. Arun draws on Biju, Biju accepts, and Arun discounts it at a bank. They split the cash and agree to meet their respective shares before the bill falls due. Since there is no real trade behind it, an accommodation bill is handled differently in the accounts: the party who received more of the proceeds bears the larger share of the discount expense. This contrasts with a trade bill, which always has a genuine credit sale at its origin.

An Indian example

Rahul runs a small cashew processing unit in Kollam. In October, just before the festival season, he supplies ₹1,20,000 worth of packaged cashews to a supermarket chain in Thiruvananthapuram on 60-day credit. The chain accepts a bill Rahul draws on them. But Rahul needs money immediately to buy raw nuts for the next batch. He takes the accepted bill to his branch of South Indian Bank, which discounts it at 9% per annum. The bank calculates the discount: ₹1,20,000 × 9/100 × 60/365 = ₹1,775 (approx), so Rahul receives ₹1,18,225 in his account that same afternoon. Sixty days later, the supermarket pays the bank ₹1,20,000; the bank keeps ₹1,775 as its fee. Rahul got his working capital without taking a conventional loan, the supermarket got its festival stock on credit, and the bank earned a clean short-term return — everyone wins. If the supermarket had refused to pay on day 60, the bank would have charged the full ₹1,20,000 back to Rahul's account, reminding us that the drawer always carries contingent liability.

Common misconceptions to watch for

  • WRONG: 'A bill of exchange is the same as an invoice — both are documents issued in credit sales.' RIGHT: An invoice is just a record of the sale with no special legal power. A bill of exchange is a negotiable instrument under the Negotiable Instruments Act, 1881 — it can be discounted at a bank for immediate cash, endorsed to settle your own debts, or transferred to anyone; an invoice cannot do any of these things.
  • WRONG: 'Once the drawee accepts the bill, the drawer is off the hook — all liability shifts to the drawee.' RIGHT: Acceptance makes the drawee the primary debtor, but the drawer retains contingent (backup) liability. If the drawee dishonours the bill at maturity, the holder can go back to the drawer for recovery. This is why dishonour entries always re-debit the drawer or the endorser who passed the bill.
  • WRONG: 'Discounting reduces the amount the drawee owes — the debt is partially cancelled.' RIGHT: Discounting is a short-term loan from the bank to the bill-holder, not a debt reduction. The drawee still owes the full face value at maturity. The discount amount is simply the bank's interest charge for advancing cash early; the holder receives less cash now, but the drawee pays the full amount to the bank on the due date.

Video

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Bills of Exchange Journal Entries: 5 Must-Know AI Prompts

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Bills of Exchange Journal Entries: 5 Must-Know AI Prompts

Questions

Worked example

Rajesh Kumar, a fabric wholesaler, sells goods worth ₹50,000 to Priya Textiles on 1 Jan 2024. He draws a bill payable 90 days later. Priya accepts on 2 Jan. On 15 Feb, Rajesh discounts the bill at 12% p.a. with HDFC Bank. On 31 Mar, Priya pays the bank directly. Record all journal entries in Rajesh's books.

1 / 4
  1. 1
    Record the credit sale and drawing of the bill on 1 Jan 2024.
    Dr Bills Receivable ₹50,000 | Cr Sales ₹50,000
    Rajesh has sold goods on credit and formalised the debt with a bill of exchange. Bills Receivable (an asset) is debited because Rajesh now holds a negotiable instrument representing his right to receive ₹50,000. Sales (revenue) is credited to record the income from the transaction.
Reveal one step at a time. Read each before the next.
Practice

Question 1 of 5 · easy

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Which best distinguishes a bill of exchange from an invoice?

Quiz

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Quiz

Question 1 of 5 · easy

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Which best distinguishes a bill of exchange from an invoice?

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