Yousufi Commerce Academy BILLS OF EXCHANGE SPECIMEN & KEY POINTS OF THE CHAPTER

(A)

NON-ACCOMMODATION / TRADING BILLS

Cases: 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11.

Bill retained till due date and honored. Bill retained till due date and dishonored. Bill discounted and honored. Bill discounted and dishonored. Bill endorsed to third party and honored. Bill endorsed to third party and dishonored. Bill sent to bank for collection and honored. Bill retired under rebate. Bill sent to bank for collection and dishonored. Renewal of bills of exchange Insolvency of one party

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Compiled by: Prof. Mohsin Ali Yousufi

(0323-4682860)

Yousufi Commerce Academy JOURNAL ENTRIES CASE-1: Bill Retained Till Due Date and Honoured BOOKS OF DRAWER xxx Sales Account xxx Bill Receivable Account xxx Drawee xxx Cash / Bank A/c xxx Bill Receivable xxx

BOOKS OF DRAWEE Purchases Account xxx Drawer xxx Drawer xxx Bill Payable A/c xxx Bill payable Account xxx Cash / Bank A/c xxx

Drawee

CASE-2 Bill Retained Till Due Date and Dishonoured BOOKS OF DRAWER Drawee xxx Bill Receivable Account xxx

BOOKS OF DRAWEE Bill Payable Account xxx Drawee xxx

CASE-3 Bill Discounted and Honored Books of Drawer Drawee A/c xxx Sales A/c

xxx

(goods sold on credit basis)

Bill Receivable A/c xxx Drawee A/c

No Entry

(Goods purchased on credit basis)

Drawer A/c xxx

(Acceptance received from Drawee for the period of ….)

Bank A/c Discount A/c Bill Receivable A/c

Bank’s Books

Books of Drawee Purchases A/c Drawer A/c

Bill Payable A/c

No Entry

(Acceptance given to drawer for the period of …..)

Bill Receivable A/c Drawer A/c Discounted A/c

No Entry

(Bill Discounted)

(Bill discounted)

Bill Payable A/c Cash A/c No Entry

Cash A/c Bill Receivable A/c

(on maturity, acceptance is paid in cash)

(On maturity, bill honored)

Case-4: Bill Discounted and Dishonoured BOOKS OF DRAWER Drawee A/c xxx Bank A/c xxx (Bill Dishonoured)

BOOKS OF DRAWEE Bill Payable Account xxx Drawer xxx (Bill Dishonoured)

Books of Endorsee Drawer A/c Bill Receivable A/c (Bill Dishonoured)

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Compiled by: Prof. Mohsin Ali Yousufi

(0323-4682860)

Yousufi Commerce Academy

Case-5 Bill Endorsed and Honoured Books of Drawer / Endorsor Bill Receivable A/c xxx Drawee A/c xxx

Books of Drawee

Books of Endorsee

Bill payable A/c

No Entry

Drawer

(Acceptance received from Drawee for the period of ….)

(Acceptance given to drawer for the period of …..)

Endorsee A/c Bill Receivable A/c

No Entry

Bill Receivable A/c xxx Endorsor A/c (Bill Endorsed)

No Entry

Bill Payable A/c Cash A/c (on maturity, acceptance is paid in cash)

Cash A/c Bill Received A/c (on maturity, bill becomes honoured)

Case – 6 Bill Endorsed and Dishonoured Books of Drawer / Endorsor Drawee Endorsee (On maturity, bill dishonoured)

Books of Drawee Bill Receivable A/c xxx Drawer A/c xxx (On maturity, bill dishonoured)

Books of Endorsee Endorsor A/c Bill Receivable A/c (on maturity, bill dishonoured)

Case – 7 Bill Sent to Bank for Collection and honoured Drawer Bill Receivable A/c Drawee A/c

Drawee

Bank

Bill payable A/c

No entry

Drawer

(Acceptance received from Drawee for the period of …..)

(Acceptance given to drawer for the period of ……)

Bank for collection Bill receivable a/c

No Entry

No entry

(on maturity bill sent to bank for collection)

Bank A/c Bank for collection A/c

Bill Payable A/c Cash A/c

(Bill honored)

Bank charges a/c Bank A/c (Collection fee charged by bank)

(Bill honoured)

Cash A/c Drawer (Cash received against bill & credited to drawer A/c)

Drawer No Entry

Case – 8 Bill Retired Under Rebate Drawer Bill Receivable A/c Drawer A/c (Acceptance received from Drawee for the period of ….. ) Cash A/c Rebate A/c Bill receivable A/c (Bill retired under rebate before maturity)

Collection charges (collection fee charged from drawer)

Drawee Drawer A/c Bill Payable A/c (Acceptance given to drawer for the period of …..) Bill payable A/c Cash A/c Rebate A/c (Bill retired under rebate before maturity)

Compiled by: Prof. Mohsin Ali Yousufi

(0323-4682860)

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Yousufi Commerce Academy Case – 9 Bill send to Bank for collection and Dishonouored Drawer

Drawee

Bill Receivable A/c Drawee

Drawer

(Acceptance received from Drawee for the period of …..)

(Acceptance given to drawer for the period of ….)

Bill Payable A/c

Bank for collection Bill Receivable A/c

Bank’s Book No Entry

No Entry

No Entry

Bill Payable Drawer

No Entry

(On maturity, bill sent to bank for collection)

Drawee A/c Bank for Collection A/c (Bill becomes dishonoured)

(on maturity, bill dishonored)

Bank charges A/c Bank A/c

No Entry

(collection fee charged by bank)

Case – 10 Renewal of a Bill Books of Drawee (a) Entry for cancellation of old bill is the same in all the cases Bill Payable A/c xxx Drawer xxx (the old bill is cancelled of renewal)

Drawer Collection charges A/c (Collection fee charged from drawer)

Books of Drawer (a) Entries for cancellation of the old bill. (i) When the bill is in Drawer’s Possession: Drawer xxx Bill Receivable A/c xxx (the old bill is cancelled) (ii) When the drawer has discounted the bill: Drawee xxx Bank xxx (the old bill is cancelled and amount was paid to the bank due to drawee’s inability) (iii) When the drawer has endorsed the bill: Drawee xxx Endorsee xxx (the old bill is cancelled and the endorsee becomes a creditor) (iv) When the bill is sent to the bank for collection: Drawee xxx Bank for collection xxx (the old bill is cancelled and drawee become a debtor) 4

Compiled by: Prof. Mohsin Ali Yousufi

(0323-4682860)

Yousufi Commerce Academy

(b) If the interest is paid in cash: Interest A/c Cash A/c (The interest on the renewed bill is paid in cash)

(c) If the interest is not paid in cash: Interest A/c Drawer (interest on renewed bill is payable) (d) If a part payment is made: Drawer Cash A/c (cash paid as a part payment) (e) When new bill is accepted: Drawer Bill payable A/c (new acceptance given)

(b ) if the interest is received in cash: Cash A/c Interest A/c (the interest on the renewed bill is received in cash) (c ) if the interest is not received in cash. It is rather included in the new bill: Cash A/c Interest A/c (interest due on renewed bill) (d ) if a part of the amount of the old bill is received in cash: Cash A/c Drawee (cash received as part payment) (e ) When a new bill is drawn and accepted: Bill Receivable A/c Drawee (New acceptance received)

Case —11 Insolvency of One Party Books of Drawer (a) Entry for dishonour in usual manner. Cash A/c xxx (with actual amount received) Bad debts A/c xxx (unsatisfied amount) Drawee xxx (full amount) (final divided received and the balance treated as bad debts)

Books of Drawee (a) Entry for dishonour in usual way. Drawer xxx (full amount) Cash A/c xxx (with actual Amount paid) Deficiency A/c xxx (with amount unpaid) (final cliam paid to the creditor)

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Compiled by: Prof. Mohsin Ali Yousufi

(0323-4682860)

Yousufi Commerce Academy NOTE: (1) NOTING CHARGES Noting charges always paid in case of bill dishonored. Noting charges is actual expenses for drawee. Noting charges is discussed in detail with the help of following cases. Case — 1

if noting charges paid by Drawer: Books of Drawer Drawee xxx Cash xxx (Noting charges paid in cash and receivable from Drawee)

Case – 2

Book of Drawee Noting charges / Trade expense xxx Drawer xxx (Noting charges payable to drawer)

if Noting charges paid by bank, in case of Bill Discounted by Bank:

Books of Drawer Drawee xxx Bank A/c

xxx

(Noting charges receivable from Drawee)

Case – 3

Book of Drawee Noting charges / Trade expense xxx Drawer xxx (Noting charges payable to drawer)

Banks of Bank Drawer xxx Cash xxx (Noting charges paid in cash)

If Noting Charges Paid by Endorsee, In Case of Bill is Endorsed:

Books of Drawer Drawee xxx Endorsee A/c

Book of Drawee Noting charges / Trade expense xxx xxx Drawer xxx (Noting charges receivable from (Noting charges payable to drawer) Drawee & payable to endorsee)

Case – 4

Banks of Endorsee Endorser xxx Cash xxx (Noting charges paid in cash & receivable from Endorsor)

if Noting Charges Paid by Bank, In Case of Bill Send to Bank for Collection.

Books of Drawer Drawee xxx Bank A/c xxx (Noting charges receive from Drawee)

Book of Drawee Noting charges / Trade expense xxx Drawer xxx (Noting charges payable to drawer)

Banks of Bank Endorser xxx Cash xxx (Noting charges paid in cash)

(2) In case of bill dishonoured, Drawee will always pass reverse entry of acceptance i.e., Bill Payable A/c xxx Drawer (Bill Dishonoured)

xxx

(3) In case of bill dishonoured, the account of the Drawee is always debited in the books of drawer and the account. Credit is Credit is Credit is Credit is

B/R, if the bill is retained by the drawer. Bank A/c, if the bill is discounted. Endorsee, if the bill is endorsee. Bank for collection A/c, if the bill is sent to the bank for collection. 6

Compiled by: Prof. Mohsin Ali Yousufi

(0323-4682860)

Yousufi Commerce Academy

Trade Bills (1) These bills are drawn by creditors and accepted by debtors. (2) These are drawn against proper consideration (3 ) trade bill is a proof of debts.

(B)

Accommodation Bills (1) These are not drawn by creditors. (2 ) These are drawn without any consideration. (3 ) An accommodation bill is not a proof of debts.

ACCOMMODATION BILLS

Following is the distinction between the trade and the accommodation bills.

Note: The accounting treatment for accommodation bills is almost similar to that of trade bills.

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Compiled by: Prof. Mohsin Ali Yousufi

(0323-4682860)