5.9 LET US SUM UP
Credit transactions are very common in business. The seller or the lender likes to have some
written undertaking from the debtor to pay the amount on a specified date. This may take the
form of a bill of exchange or a promissory note. A bill of exchange is drawn by a creditor on
tbe debtor. The debtor accepts it by putting his signatures across the bill. A promissory note
is written by a debtor in favour of the creditor. It is a promise by the debtor to pay a certain
sum on a certain date. There is no need for acceptance of a promissory note. A bill is a bills
receivable for the drawer and the payee and a bills payable for the drawee. Similarly, the
promissory note is a bills payable for the maker and a bills receivable for the payee,
For accounting purposes no distinction is made between the bill of exchange and a
promissory note. When the businessman receives a promissory note or an acceptance to a
biIl he may deal with it in three ways. He may retain it, discount it with the bank, or endorse
it to his own creditor, When a bill or a promissory becomes due for payment, the drawee of
a bill or the maker of a promissory note may deal with it in four ways: he may honour it,
dishonour it, renew it or retire it. All transactions with regard to bills and promissory notes
are recorded in the journal. The journal entries to be made by various parties are shown in
Chart 5.1.
If the number of transactions relating to bills is large, separate bill books can be,maintained.
In that case, all bills and promissory notes received by the fia1.n are recorded in the 'Bills
Receivable Journal' and all bills accepted and promissory note written by the firm are
recorded in the 'Bills Payable Journal',
5.10 KEY WORDS
Acceptance: A signing across the bill by the drawee to show that the terms of the bill are
accepted. Accommodation Bill: Bills drawn to accommodate or help a fellow businessman.
Allonge: A separate paper attached to the bill for noting by the Notary Public.
Bills of Exchange: An instrument in writing containing an unconditional order, directing a
certain person to pay a certain sum of money on demand or after a specified period to a
certain person or his order, Bills Payable: A bill of exchadge or a promissory note payable by the bysiness.
Bills Receivable: A bill of exchange or a promissory note receivable by the business.
Date of Maturity: The date on which bill is due for payment.
Days of Grace: Three days to be added to the actual period of the bill to arrive at the due
date.
Discounting of Bill: Encashrnent of bill with the bank before due date.
Drawer: One who draws the bill, usually a creditor.
Drawee: A person on whom the bill is drawn, usually a debtor.
Endorser: A person who transfers a bilPreccivable to his own creditor in full or part
payment of his debt.
Endorsee: A person in whose favour the bills receivable is transferred.
Holder: A person who is entitled to the p,ossessiorr of the bill and is to receive its payment.
Hundi: It is an Indian name for the bill of exchange.
Instrunlent of Credit: A written document used for the purpose of iettlement of mutual
indebtedness arising from commercial transactions.
Negotiable Instruments: A written document the title of which'can be transferred to the
third party for valuable consideration.
Notary Public: A person authorised by the Government for recording the fact of dishonour
(noting) in respect of the bill.
Payee;: A person who has the right to receive the payment against the bill.
Rebate: The dis~ount allowed to the drawee for early of the bill.
Tenor: The period for which the bill is drawn and accepted.
of the amount could be received from his estate. Record the above transactions in the books of Rishi and Shashi.
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