TREATMENT OF BILL BY THE ACCEPTOR AND ITS ACCOUNTING

5.5 TREATMENT OF BILL BY THE ACCEPTOR AND ITS ACCOUNTING

5.5.2 Renewal of the Bill Click Hear Next Page

For the person who accepts a bill of exchange or makes a promissory note, it is a bill payable. He will pass the following journal entry in his books when he accepts a bill or makes a promissory note.

Drawer (Creditor) Dr.

To Bills Payable Ale

(Being bill accepted)

When a bill is discounted or endorsed by the holder of the bill, the drawee is not required to pass any entry in his books. He comes into picture only when the bill becomes due for payment. When he makes the payment on due date, he will pass the following journal entry in his books ikespective of the fact whether the bill is retained, discounted or endorsed

Bills Payable Alo Dr.

To Bank A/c

(Being bill paid)

Look at Illustration 1 and study how journal entries are passed in the books of various , parties concerned with the bill.

Illustration 1

On January 1,1987 A sold to B goods worth Rs. 1,500. On the same date he drew on B three bills for Rs. 600,Rs. 500 and Rs. 400 for one month, two months and three months respectively. B accepted all the three bilband sent them back to A. A retained the first bill, discounted the second bill with the bank for Rs. 495 on January 5, and endorsed the third bill to C on January 6. On the due date B met his acceptances. Record the above transactions in the books of A, B and C.

Solution:

BOOKS OF A (DRAWER)

Journal

5.5.1 Dishonouring the Bill

When due to some reason the drawee (the person who has to kake the payment) is not in a position to make the payment of the bill on the due date, the bill is said to be dishonoured. In such a situation the holder of the bill gets an endorsement from the Notary Public. The purpose of such notation is to establish the facts of presentation and of dishonour. The . endorsement is done either on the bill or on a separate paper dtached to the bill called 'allonge'. The holder of the bill has to pay a small charge for service of the Notary Public. It is called 'Noting charges'. These noting charges are to be bone ultimately by the dmwee. The journal entries for the dishonour of the bill and noting charges in the books of the drawer, the drawee and the endorsee are as follows :

If the drawee is declared insolvent on or before the due date, the blll is deemed to have been dishonoured and all entries for dishonour will have to be passed in the books of the concerned parties as given above.

Look at Illustration 2 and see how dishonour entries are recorded in the books of various parties.

Illustration 2

On January 1, 1988 Q owes to P Rs. 2,400 and accepts three bills as per the following details.

i) for Rs. 1,000 for 2 months, it is retained by P

ii) for Rs. 800 for 3 months, it is endorsed to R

iii) for Rs. 600 for 4 months, it is discounted with $0 bank for RS. 580.

What will be the entries in the books of P, Q and R if the bills are dishonoured on due dates and noting charges Rs. 8 are paid in all the three cases.