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DK Goel Class 11 Accountancy Solutions: Chapter 18 Overview

DK Goel Class 11 Accountancy Solutions: Chapter 18 Overview

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Class 11 DK Goel Solutions Chapter 18 - Bills of Exchange

Download Important Class 11 Chapter 18 - Bills of Exchange Free PDF from Vedantu

Bills of Exchange is an important chapter in Class 11th. The definition of the term ‘Bills of Exchange’ would entail any business transaction involving sale or buying of products or services on cash or credit. Credit means the payment is postponed to a date sometime in future. As an understanding of the due payment, a written instrument of credit is used between the buyer and the seller according to some agreed conditions. Such instruments of credit are called Bills of exchange.

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Bill of Exchange

Bill of exchange is regulated by law under ‘The Negotiable Instruments Act 1881, a Bill of Exchange is an instrument in writing containing an unconditional order, signed by the one person, directing another person to pay a particular sum of money only to, or to a certain person or the bearer of the instrument.’

A bill of exchange can help to alleviate some of the risks associated with exporting. Exporters can rely on the predetermined payment terms outlined in a bill of exchange because currency rate changes can have a substantial influence on long-term commercial agreements between enterprises in different nations. It gives the customer enough time to pay for their products. Establishes a legal basis for the seller to file a lawsuit against the buyer if payment is not made on time.

It is a firm order given by one party to its trading partner to pay a predetermined sum of money on a predetermined date in exchange for goods and/or services received. Exporting has a different set of risks than domestic trade, which may be unfamiliar to business owners. Bills can be exchanged in a variety of ways, including Supply bill, Trade bill, Foreign bill, Clean bill, Inland bill, Usance bill, Demand bill, Documentary bill.

Generally three parties are involved in bills of exchange namely Drawee, Drawer and Payee. To prevent dishonour of the bill, we may ask the drawer to issue a new build with new terms in exchange for the cancellation of the old one. This is known as renewal of a bill.

Making a note of a bill or note that has been honoured is a convenient way to verify that it has been honoured. It is usually advisable to have a notary public document the fact that a bill was not honoured despite being duly presented. In this way, it validates the fact of dishonour. When a bill is dishonoured, the holder can put it to the test by having the fact not only documented but also certified by a notary public.

Features of the Bills of Exchange

Following are the features of Bills of Exchange:

It must be in writing.
It must contain a confirmed order.
No conditions to the order.
Defined Amount.
Fixed date for payment.
Three Parties: Drawer, Drawee and Payee.
Signed by both parties; Drawer and Drawee.
Paid on-demand / at the expiry of a fixed period.
Paid to the beneficiary, specific person, or against a definite order.

Promissory Note

A written promise to pay a particular sum of money without any conditions to a specific person or according to his order, the document is called a promissory note.

Features of the Promissory Note

In writing
Unconditional promise to pay.
Fixed Amount to be paid.
It must be signed by the maker.
Signed by the maker.
Payable to a specific person.
Be properly stamped.

Despite the Negotiable Instruments Act 1881, mentioning a promissory note as an instrument of credit, according to the Reserve Bank of India Act, a promissory note payable to bearer is illegal. Therefore, it cannot be made payable to the bearer.

DK Goel solutions for Class 11 Chapter 18 Bills of Exchange Solutions based on this chapter can help the students understand the concept of Bills of Exchange well. Through the end of the chapter question solutions, the students can clearly understand the appropriate way of answering the questions as expected by the examiners.

Numerical questions that appear in the exams are clearly and distinctly explained in DK Goel class 11 GST solutions. There are primarily two types of Numerical Questions that you will find answers to.

Important Concepts of Class 11 Bills of Exchange Topic

Class 11 contains Bills of Exchange solutions that cover the following important topics in addition to the Bills of Exchange and Promissory Notes.

Term/Period of Bill: It is the time period between the date on which a bill is drawn and the date on which it is payable.
Days of Grace: It is an extra period of 3 days added to the period of the bill.
Date of Maturity: This is the date which comes after adding three days of grace to the period of the bill.
Discounting of Bill: This means Encashing the bill before the date of its maturity at the bank on payment of service charges to the bank.
Endorsement of Bill: This means the transfer of bill to someone for settlement of debts and dues.
Dishonour of Bill: This is said to have occurred when the payment of the bill amount is not made by the acceptor.
Noting of a Bill: This means Bringing the dishonouring of the bill to the notice of a Notary Public.
Renewal of Bill: It is the process of cancellation of an old bill and drawing of a fresh bill by the drawer with new terms of payment followed by its acceptance and delivery done in the situation of an acceptor's inability to make the payment on the due date.
Retiring of the Bill: This means the drawee paying the bill before its due date.

DK Goel solutions for Class 11 Accountancy Chapter 18 gives an advantage to the students as they elucidate the format of for calculation of Due date of payment of Bills of Exchange. One can download these solutions for free from the website of Vedantu and its mobile application.

Preparing from Class 11 Accountancy Chapter 18 Practical Problems

After going through the prescribed Accountancy textbook, once you have understood the main concepts, we suggest you download DK Goel Accountancy Class 11 solutions Chapter 18 Bills of Exchange from Vedantu. This is a very comprehensive resource to refer for quick revision and solved numerical questions of both Journal entries and bills of exchange.

Study Tips:

Make notes in your handwriting while preparing from DK Goel class 11 bills of exchange solutions. This helps consolidate what you have learnt.
Remember the golden rules for Journals and Bills of Exchange entries which have been very well placed and explained in bills of exchange Class 11 solutions DK Goel.
Refer to bills of exchange DK Goel solutions every two days for regular practice.
Class 11 Accounts Bills of exchange serve as good resources for quick revision and contain topics like Ledger Folio, various kinds of GST journal entries and solved numerical examples. These solutions for practical questions will help you in understanding the details of the calculations of the solutions.

FAQs on DK Goel Class 11 Accountancy Solutions: Chapter 18 Overview

1. What is the correct method to calculate the 'Date of Maturity' for a Bill of Exchange, including the 'Days of Grace', as per DK Goel Class 11 solutions?

The DK Goel solutions explain that the Date of Maturity is the date on which the payment of a bill is due. To calculate it correctly as per the Negotiable Instruments Act, 1881, you must follow these steps:

First, determine the nominal due date based on the bill's term (e.g., 30 days after the date of drawing).
Next, add three extra days, known as 'Days of Grace', to this nominal due date.
The resulting date is the final Date of Maturity. For example, a bill drawn on January 1st for one month is nominally due on February 1st. After adding 3 days of grace, its maturity date becomes February 4th.

The solutions also clarify exceptions, such as if the maturity date falls on a public holiday, the due date becomes the preceding business day.

2. How do DK Goel solutions for Chapter 18 explain the journal entries for 'Discounting a Bill' with a bank?

The solutions provide step-by-step journal entries for discounting a bill, which means encashing it from a bank before its maturity date. The accounting treatment in the books of the Drawer is shown as:

Debit: Bank A/c (with the amount received after discount).
Debit: Discounting Charges A/c (with the fee charged by the bank).
Credit: Bills Receivable A/c (with the full face value of the bill).

No entry is made in the books of the Drawee at the time of discounting, as their liability to pay on the due date remains unchanged.

3. What key steps are involved in recording the 'Endorsement of a Bill' as solved in DK Goel Chapter 18?

Endorsement is the process of transferring a Bills Receivable to a creditor to settle a debt. The DK Goel solutions illustrate the following journal entry in the books of the Drawer (who is endorsing the bill):

Debit: The Creditor's Account (the person to whom the bill is endorsed, known as the Endorsee).
Credit: Bills Receivable Account.

This entry effectively transfers the asset (Bills Receivable) to settle the liability (amount owed to the Creditor). The books of the Drawee are not affected by the endorsement.

4. Why is an 'unconditional order' a mandatory feature for a Bill of Exchange, and how do DK Goel solutions reflect this?

An 'unconditional order' is a legally crucial feature because it ensures the instrument's negotiability and certainty of payment. A conditional order (e.g., "pay upon the sale of goods") would create uncertainty and make the instrument unreliable for trade. The Negotiable Instruments Act, 1881, mandates it to be an absolute direction to pay. DK Goel solutions implicitly reflect this principle by ensuring all practical problems assume an unconditional order. The journal entries for acceptance and payment are straightforward precisely because the obligation to pay is not dependent on any future event.

5. What is the accounting difference between 'Noting Charges' and the 'Renewal of a Bill' when a bill is dishonoured?

The key difference lies in their purpose and accounting treatment after a bill is dishonoured.

Noting Charges: These are fees paid to a Notary Public to officially record the fact of dishonour. It serves as legal evidence. The Drawer initially pays these charges and then recovers them from the Drawee. The Drawee's account is debited with the amount of noting charges.
Renewal of a Bill: This is an entirely new agreement. The old, dishonoured bill is cancelled, and a new bill with new terms (often including interest for the extended credit period) is drawn and accepted. It involves cancelling the old bill, charging interest, and then recording the acceptance of the new bill.

DK Goel solutions provide separate, multi-step journal entries for each scenario, clarifying how noting charges are added to the Drawee's debt, while renewal involves creating a completely new financial instrument.

6. If a bill is 'retired' before its due date, how do the DK Goel solutions illustrate the calculation and journal entry for the 'rebate'?

Retiring a bill means the Drawee pays it before the maturity date. To encourage this, the Drawer often gives a discount called a 'rebate'. DK Goel solutions demonstrate the journal entries in the Drawer's books as follows:

Debit: Cash/Bank A/c (with the actual amount received).
Debit: Rebate on Bill A/c (an expense for the Drawer, representing the discount given).
Credit: Bills Receivable A/c (with the full face value of the bill).

The rebate is typically calculated as a percentage of the bill's value for the unexpired period of the bill.

7. What is the core difference between a 'Bill of Exchange' and a 'Promissory Note' as explained in the context of DK Goel's practical problems?

While both are instruments of credit, the DK Goel solutions highlight a fundamental difference in their origin and parties involved:

A Bill of Exchange is an order to pay, drawn by the seller (Drawer) on the buyer (Drawee). It requires acceptance by the Drawee to be valid. There are three parties: Drawer, Drawee, and Payee.
A Promissory Note is a promise to pay, made by the buyer/debtor (Maker) to the seller/creditor (Payee). It does not require acceptance as it is a promise from the start. There are only two parties: the Maker and the Payee.

The practical problems show different initial journal entries; a Bill of Exchange is recorded as 'Bills Receivable' for the Drawer and 'Bills Payable' for the Drawee only after acceptance.