Journal Entry for Bills of Exchange

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Bills of Exchange Accounting Entries

Bills of exchange account entries are also known as an instrument that is used in writing any unconditional or conditional statement or a statement that is signed by a maker which directs that a particular person has to pay the specified amount to bear the product. The bill of exchange has to satisfy some specific terms and conditions. One of them is that the terms and conditions should be written and not just said. Also, it should be signed by a drawer. Lastly, three parties should be present while the instrument carries on to be exhibited. 


Journal Entries of Bills of Exchange 

Three different parties help in the understanding of journal entry for bills of exchange. They are:

1. Drawer: 

A drawer is a person who makes the bill of exchange. He or she is the person who is responsible or has the duty of selling goods and receiving the payments from those goods. 

2. Acceptor or the Drawee: 

He or she is the person who is responsible for the drawing of the bill of exchange. This particular individual has the duty of making the payment to the ones who supply the goods. 

3. Payee: 

Payee is the individual to whom the payment is supposed to be made. A payee can be the drawer himself if there is no presence of the third party in the matter. 


Accommodation Bill Journal Entries

Recording Transactions 

Accounting bills can be classified into two categories:

  • Bills Receivable: 

Any bill of exchange is treated like a bill receivable only by the one who is entitled to receive the total sum that is due to it. When one draws a bill that is received by the debtors, the bill receivable is on maturity and it is held up to a specific period.

  • Bills Payable: 

A bill payable refers to the bills that one has to pay on the due dates. The bill becomes liable once it is paid by a person. This means that the same bill is received by one party and paid by another party. 


Bill of Exchange All Journal Entries

Discounting of Bills

  • When the holder of any bill has a sudden need for money then she or he can sell it to the bank with its given amount.

  • Bill of exchange is known as the shortcoming funding as a means of exchange. 

  • Any bill can carry out the discounting bill only if the bank states establishing the process. 

  • This results in the immediate payment of the amount and the bill are reduced by the discount cost.

  • Bill of exchange is then sent to the maturity date collection

  • The acceptor does not have any concerns regarding the discounting bill.


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FAQ (Frequently Asked Questions)

1. How do Journal Entries of Bill Exchange for the Drawer Book look like?

Ans: 

Date

Particulars

Amount (Dr)

Amount (Cr)

1. Issuing of the bill

Bills receivable A/c

bb



Drawee’s A/c

(the bill that was accepted and drawn)


bb

2. Bills remain retained until its maturity

No entry



a. In case of honours

Cash or bank A/c

bb



Bills receivable A/c

Bills are retained till maturity and payments are received


bb

b. In case of dishonour 

Drawee’s A/c

bb



To the A/c that will receive the bill

(Bills are retained till maturity or dishonoured)


bb

3. Bill is discounted from the bank

Bank A/c (amount received)

bb



Discount A/c (an amount that appears to be on discount)

bb



To,

Bills receivable A/c

(bill discounted with the bank)


bb

a. In case of honour

No entry



b. In case of dishonour

Drawee’s A/c

bb



To, Bank A/c

(a discounted bill that is dishonoured)


bb

4. Bill is endorsed

Creditor’s or Endorsee’s A/c

bb



Bills receivable A/c

Bill endorsed in favour of the creditor)


bb

a. In case of honour

No entry



b. In case of dishonour

Drawee’s A/c

bb



To creditor’s or Endorsee’s A/c

(The endorsed bill is dishonoured)


bb

2. What are the Types of Bills of Exchange?

Ans: The bill of exchange issued by the banks is called a bank draft. The bank that issues the bill is held responsible for the payment of any transactions related to the bill whereas the bill of exchange that is issued by an individual is referred to as the trade drafts. 


If a fund is paid immediately and is in high demand then it is known as a side draft. A side draft allows the exporter of a product to hold the title until it is exported. The funds that are paid on a particular date in the future are known as time draft. 

3. State the difference between Bill of Exchange and Promissory Note.

Ans: The difference between a bill of exchange and a promissory note is that the former is transferable and can bind the parties that are directly not involved in the creation. Banknotes are also known as promissory notes. A creditor issues the bill of exchange and he or she orders the debtor to pay the amount within a specific time. On the other hand, the promissory notes are issued by the debtor himself.