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Bill of Exchange Class 11 Notes CBSE Accountancy Chapter 8 (Free PDF Download)

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Revision Notes for CBSE Class 11 Accountancy Chapter 8 - Free PDF Download

Understanding and learning all the important topics and concepts is essential for students to acquire good scores in exams. With these revision notes, you can clear all your doubts, concepts and tops introduced in the chapter which will help you learn faster. Experts at Vedantu have created the  Chapter 8 Bills of Exchange notes based on the syllabus prescribed by CBSE. Our goal is to make learning flexible and convenient for students. Class 11 Accountancy Chapter 8 Notes are available to download in the PDF format on the official website of Vedantu. We believe that it will allow you to learn from anywhere without restrictions. 

Download CBSE Class 11 Accountancy Revision Notes 2024-25 PDF

Also, check CBSE Class 11 Accountancy revision notes for All chapters:


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Class 11 Accounts Chapter 8 Notes PDF Download

Definition

A bill of exchange is an instrument in writing, which consists of an unconditional order duly signed by the maker of the bill directing to pay a specific sum of money only to or to the order of a specific person or the bearer of the instrument.


Features of Bills of Exchange:

  • It must be in written form and it should bear the signature of the party giving the bill.

  • It must contain an unconditional order to make payment.

  • The amount of the bill of exchange must be definite with a fixed date.

  • It must be signed by the maker (known as the drawer) of the bill.

  • It must be signed by the acceptor (known as drawee) of the bill.


Parties to Bills of Exchange:-

  1. Drawer: The drawer is the party that issues a bill of exchange. He is the seller of goods  entitled to receive money from someone

  2. Drawee or Acceptor: He/she is the purchaser of goods on whom the bill is drawn and has to pay the amount that is mentioned in the bill.

  3. Payee: The person who is entitled to get the payment is known as the payee. The drawer himself or a other party may be the payee of the bill.


Bills of Exchange

Advantages of Bills of Exchange

  • It is helpful for a person in the purchase and sale of goods on credit and also helps in availing mko discounting facility.

  • Legal evidence.

  • Endorsement is possible in the bill of exchange.

  • It provides relief from sending reminders.

  • Helpful in planning cash operations.

  • Convenient means of making foreign payments.

  • Saving money in circulation.

  • Convenience for the purchaser.


Promissory Note

The purchaser of the goods or debtor by himself prepares a note, signs it and gives it to the seller of the goods. It is known as a promissory note. A promissory note is an instrument in writing, which consists of an unconditional undertaking duly signed by the maker to pay a certain sum of money to, or to the order of, a certain person. 


Features

  1. It must be in writing and the amount to be paid must be specified.

  2. It must be signed by the maker of the bill also known as the promisor.

  3. The name of the payee must be mentioned in the note.

  4. It must be duly stamped according to its value as per the Stamp Duty Act.


Parties to a Promissory Note:

  1. Maker: Those people who write a promissory note and sign it.

  2. Payee: Those people who are entitled to get the payment.


The Distinction Between a Bill of Exchange and a Promissory Note:

Basis 

Bill of Exchange 

Promissory Note

1. Parties 

There may be three parties, the drawer, the acceptor, and the payee.

There are two parties to it, i.e. the maker is the person who draws the note and signs it and the payee to whom the specific amount is payable. 

2. Drawer

Bill of exchange is drawn by the purchaser who purchased goods on credit. 

Promissory note is drawn by the debtor

3. Order and promise 

Bill of exchange is an order to make payment.

It is a promise to make payment in the future.

4.Payee

The drawer of the bill can be the payee of the bill.

A maker of a promissory note cannot be the payee of it.


Accounting Treatment:

For accounting, bills are divided into two categories:

  1. Bills receivable

  2. Bills payable

Different uses of bills receivable:-

  1. He may keep it till the date of maturity.

  2. He may discount the bill with the banker before the maturity date.

  3. He may endorse some other party before the date of maturity.

  4. He may transfer it to his banker for collection.


When the bill is retained by the drawer in his possession till the date of maturity:

Transaction 

Books of Drawer

( suppose X)

Books of Drawer

( suppose Y)

1. When X sold goods to Y

Y a/c            Dr.

      To sales a/c

( goods sold on credit)

Purchases a/c    Dr.

     To X a/c

( Goods purchased on credit)

2.When X received a bill duly accepted by Y

Bills receivable.    Dr.

     To Y a/c

( Acceptance received)

X a/c         Dr.

     To bills payable a/c

( Acceptance given)

3. When the bill is retained by X till the date of maturity and Y pays the amount of the bill on maturity 

Bank a/c            Dr.

     To bills receivable a/c

( The amount of bill received on maturity)

Bills payable a/c    Dr.

     To bank a/c

( The amount of bill paid on maturity) 


When the bill is discounted from the bank:

Transaction 

Books of Drawer 

( suppose X)

Books of Drawer

( suppose Y)

1. When X discounts the bill from the bank

Bank a/c             Dr.

Discounting charges a/c

     To B/R a/c

( Bill discounted) 

No entry

2. When Y pays the bill amount on the due date

No entry

Bills payable a/c      Dr.

     To bank a/c

( The amount of the bill paid to the bank)


Negotiation of a Bill

Negotiation means the transfer of a bill of exchange to another person in such a manner that the transferee of the bill becomes its holder, who has the right to possess the bill in his own name and to recover the amount mentioned therein from concerned parties.


Modes of Negotiations

  1. Negotiation by delivery.

  2. Negotiation by endorsement and delivery.


Endorsement of a bill

Endorsement means signing the bill of exchange to transfer it to another.

Transactions 

Journal of X

Journal of Y

Journal of Z

1. If X endorsed a bill in favour of Z

Z a/c             Dr.

     To B/R a/c

( B/R endorsed to Z)

No entry

B/R a/c        Dr.

     To X

( B/R received)

2. Y pays the amount of the bill on the due date

No entry

B/P a/c         Dr.

     To bank a/c

( The amount of the bill paid on due date) 

Bank a/c    Dr.

     To B/R a/c 

( The amount of the bill received )


Retiring a Bill Under Rebate

Retiring the bill is a case where the drawer makes the payment of a bill before its due date.


In such a case, the holder of the bill usually allows him a discount, technically called a rebate.


The rebate is a gain to the party making the payment and an expense of the party receiving the payment.

Transactions 

Journal of X (Drawer)

Journal of Y (Drawer)

If Y retires his acceptance before the due date

Bank a/c                   Dr.

Rebate on bill a/c    Dr.

     To B/R a/c

( Amount received before the due date and rebate allowed) 

B/P a/c                      Dr.

     To bank a/c

     To rebate on bill a/c

( Amount paid before the due date and rebate received )


Dishonour of a Bill

In case when the acceptor of a bill refuses to pay the due amount of the bill on it's maturity date or if he becomes insolvent, this is known as dishonour of the bill.


Noting Charges

The notary officer charges a minimum fee for the services of warning the drawer of the bill to get clear in a specific period of time. This is known as noting charges.

Transactions 

Drawer (X)

Drawee( Y)

When ' Y ' the acceptor of the bill dishonours the bill on the due date

Y a/c               Dr.

     To B/R a/c

( Bill dishonoured or cancelled )

B/P a/c              Dr.

     To X a/c

( Bill dishonoured or cancelled )

When 'X' pays noting charges 

Y a/c             Dr.

     To cash a/c

( Noting charges paid on Y's behalf)

Noting charges a/c    Dr.

     To X a/c

( Noting charges payable to X)

Usually, a compound entry is passed for the two entries passed as above

Y a/c           Dr.

     To B/R a/c

     To cash a/c

(Bill dishonoured and noting charges paid)

B/P a/c                       Dr.

Noting charges a/c   Dr.

     To X a/c

( Bill dishonoured and noting charges paid by X)


Renewal of Bill

In case when the acceptor is unable to pay the bill amount on the due date. In that case he/she may request the holder of the bill to cancel the original bill and draw a new bill in replacement of the old one.

Transactions 

Drawer (X)

Drawee(Y)

An entry is passed for the cancellation of the old bill.

Y a/c                   Dr.

     To B/R a/c

(Bill cancelled)

B/P a/c               Dr.

     To X a/c

(Bill cancelled)

When Y pays the amount of interest in cash.

Cash a/c             Dr.

     To interest a/c

(The amount of interest received in cash)

Interest a/c       Dr.

     To cash a/c

(The amount of interest paid in cash)

When Y does not pay the amount of interest in cash.

Y a/c                   Dr.

     To interest a/c

(Interest receivable from Y)

Interest a/c      Dr.

     To X a/c

(Interest payable to X)

When a new bill is received from Y.

B/R a/c              Dr.

     To Y

(New acceptance received)

X a/c                      Dr.

To B/P

(New acceptance given)

In case the bill discounted from the bank is dishonoured

In case if the bill is discounted from the bank and is dishonoured in that case, noting charges has to be paid by the bank. The noting charges are ultimately borne by the acceptor as  the bank recovers the noting charges from the person who discounted the bill from the bank.

Journal of X (Drawer)

Journal of Y (Drawee)

Y a/c                                               Dr.

     To bank a/c

(Bill dishonoured and noting charges paid by the bank)

B/P a/c                                            Dr.

Noting charges a/c                        Dr.

     To X a/c

(Bill dishonoured and noting charges payable)

When the bill endorsed to a third party is dishonoured

In such a case, the noting charges must have been paid by the endorsed.

The acceptor bears the noting charges ultimately as the endorsee will recover the noting charges from the endorser.

Transactions


Journal of drawer

  (Suppose X)

Journal of drawer

(Suppose Y)

Journal of endorsee

(Suppose Z)

Suppose, a bill that was received by X and Y, and was subsequently endorsed to Z, is dishonour due date.

Y a/c                   Dr.

     To Z a/c

(Bill dishonoured and the amount of bill + noting charges receivable from Y and payable to Z)

B/P a/c               Dr.

Noting charge a/c

     To X a/c

(Bill dishonoured and noting charges payable to X)

X a/c             Dr.

     To B/R a/c

     To cash a/c

(Bill dishonoured and noting charges paid in cash)


Bills may be of two types:

  1. Trade bill

  2. Accommodation bills


Trade Bill

When a bill is accepted to settle a trade debt it is known as a trade bill.


Accommodation Bill

Sometimes, to oblige a friend, a bill may be accepted without consideration. Such a bill is known as an accommodation bill or kite or windmill.


The Distinction Between an Ordinary Bill (trade bill) and an Accommodation Bill:-

Basis of Distinction 

Trade Bills

Accommodation Bills

Object

These bills are drawn against trade transactions of sale and purchases.

These bills are drawn for financial assistance.

Consideration 

These bills are drawn against proper consideration.

These bills are drawn without consideration.

Proof of debt

These bills are proof of debt.

The drawer is a debtor.

These bills are not proof of debt because the drawer is not a debtor.


Let’s Practice with Some Questions:-

On April 15, 2016, Suraj sold goods for Rs. 70,000 to Parmesh and drew upon later a bill for the same amount payable after 3 months. The bill was accepted by parmesh. Suraj discounted the bill from the bank for Rs. 67,000 on 30th April 2016.

On maturity, the bill was dishonoured. Parmesh agreed to pay Rs. 30,000 in cash including Rs. 2,000 interest and accepted a new bill for 3 months. The new bill was endorsed to Rajesh in full settlement of his account Rs. 45,000.

It was duly met on maturity. Pass entries in the books of Suraj.

Ans:         

In the Books of Suraj

Journal Entries

For the year ended 31st March 2017

Date

Particulars 

L.F

Debit
(in Rs.)

Credit
(in Rs.)

2016





April 15

Parmesh a/c                          Dr.

To sales a/c

(Being goods sold to parmesh)


70,000


70,000

April 15

Bills Receivable a/c                 Dr.

To parmesh a/c  

(Acceptance received )


70,000


70,000

April 30

Bank a/c                                     Dr.

Discounting charges a/c

To Bills receivable a/c

( B/R discounted)


67,000

3,000



70,000

July 18

Parmesh a/c                            Dr.

To bank a/c

(Bill dishonoured )


70,000


70,000

July 18

Parmesh   a/c                          Dr.

To interest a/c

(Interest due)


2,000


2,000

July 18

Cash /bank a/c                        Dr.

To parmesh a/c  

(Cash received )


30,000


30,000

July 18

Bills Receivable a/c                 Dr. 

To parmesh a/c  

(New acceptance received )


42,000


42,000

July 18

Rajesh a/c                                        Dr.

To bills receivable a/c

To Discount received a/c

(Bill endorsed in full settlement)


45,000


42,000

3,000


Question: 

Narayan purchased goods for Rs.50,000  from Ravinder on Feb 1,2017. Ravinder drew upon Narayan a bill of exchange for the same amount payable after 30 days. On the due date Narayan dishonoured his acceptance.

Pass the necessary journal entries in the books of reminder in following cases:

  1. When the bill was retained by Ravinder with him till the date of it’s maturity.

  2. When the bill was discounted by Ravinder immediately with his bank @6% p.a.

  3. When the bill was endorsed to his creditor ganesha.

  4. When the bill was sent by ravinder to his bank for collection a few days before it’s maturity.

Ans:                  

In the Books of Ravinder

Journal Entries

For the year ended 31st March 2017

Date

Particulars

L.F

Debit

Credit

2017





Feb.1

Narayan a/c                           Dr.

To sales a/c

( Goods sold to Narayan)


50,000

50,000

Feb.1

Bill receivable a/c                Dr.

To Narayan a/c

(Acceptance received)


50,000

50,000

Case(i)

When bill is retained :




March6

Narayan a/c                                   Dr. 

To bills receivable a/c

(Bill dishonoured)


50,000


50,000

Case (ii)

When bill is discounted: 




Feb.1

Bank a/c                                Dr.

Discounting charges a/c

To bills receivable a/c

(Bill discounted)


49,750

250



50,000

March 6

Narayan a/c                        Dr.

To bank a/c

(Bill dishonoured)


50,000


50,000

Case (iii)

When bill is endorsed:




Feb.1

Ganesh a/c                        Dr.

To bills receivable a/c

(Bill endorsed)


50,000


50,000

March 6

Narayan a/c                     Dr. 

To Ganesh a/c

(Bill dishonoured)


50,000


50,000

Case(iv)

When the bill is sent for collection




…….

Bill sent for collection a/c        Dr.

To bills receivable a/c

(Bill sent for collection)


50,000


50,000

March 6

Narayan a/c                               Dr.

To bills sent for collection a/c

(Bill dishonoured)




50,000


50,000



Question: 

Kapil purchased goods for Rs.42,000 from gaurav on 1.2.2017 and accepted a bill of exchange drawn by gaurav for the same amount. The bill was payable after one month. On 25.2.2017 Gaurav sent the bill to his bank for collection. The bill was duly presented by the bank. Kapil dishonoured the bill and the bank paid Rs.100 as noting charges.

Record the necessary journal entries for the above transactions in the books of kapil and gaurav. 

Ans:                                

In the Books of Kapil

Journal Entries

For the year ended 31st March 2017

Date 

Particulars

L.F

Debit

Credit 

2017





Feb.1

Purchases a/c                            Dr.

To gaurav a/c

(Goods purchased from Gaurav)


42,000

42,000

Feb.2

Gaurav a/c                                  Dr. 

To bills payable a/c

(Acceptance given)


42,000

42,000

Mar.4

Bills payable a/c                        Dr.

Noting charges a/c                   Dr. 

To gaurav a/c

(Acceptance dishonoured and noting charges due)


42,000

100


42,100


In the Books of Gaurav

Journal Entries

For the year ended 31st March 2017

Date

Particulars 

L.F

Debit

Credit

2017

 




Feb.1

Kapil a/c                                     Dr.

To sales a/c

(Goods sold to kapil)


42,000

42,000

Feb.1

Bills receivable a/c                   Dr.

To kapil a/c

(Acceptance received from kapil)


42,000

42,000

Feb.25

Bill sent for collection a/c       Dr. 

To bills receivable a/c

(Bill sent to the bank for collection)


42,000

42,000

Mar.4

Kapil a/c                              Dr. 

To bills sent for collection a/c

To bank a/c
(bill dishonored on due date and paid the noting charges)


42,100


42,000

100

FAQs on Bill of Exchange Class 11 Notes CBSE Accountancy Chapter 8 (Free PDF Download)

1. Name the parties that are involved in a bill of exchange.

Three parties that are involved in a bill of exchange are:

  1. Drawer

  2. Drawee

  3. Payee

2. What is meant by the renewal of a bill?

To prevent dishonour of the bill, the drawee may ask the drawer to issue a new bill with new terms in exchange for the cancellation of the old one. This is called renewal of a bill.

3. What is the importance of bills of exchange according to Chapter 8 of Class 11 Accountancy?

A bill of exchange can assist mitigate some of the hazards of exporting. Because currency rate changes may have a significant impact on long-term business agreements between companies in various countries, exporters can rely on the set payment terms outlined in a bill of exchange. It allows enough time for the consumer to pay for the purchases. It establishes a legal foundation for the seller to pursue a case against the purchaser if payment is not received on time.

4. Why is a bill of exchange unconditional according to Chapter 8 of Class 11 Accountancy?

The bill of exchange is an unconditional command to pay a specific amount on a certain day, whereas the promissory note is an unconditional promise to pay a specific amount on a specific date. A conventional bill of exchange will include several important details. It will, first and foremost, include an unconditional order to pay a certain sum of money, as well as the identity of the person or corporation that must pay that money. It's a request for payment. The payment order is not conditional.

5. What is the bill of exchange and its types as discussed in Chapter 8 of Class 11 Accountancy?

A bill of exchange is a strict instruction given by one party to its trading partner to compensate a negotiated amount of money on a fixed date for goods and/or facilities received. Exporting generally entails a different set of hazards than domestic commerce, which may be new to business owners.  Types of bill exchange:

  • Supply Bill

  • Trade Bill

  • Accommodation Bill

  • Foreign Bill

  • Clean Bill

  • Inland Bill

  • Usance Bill

  • Demand Bill

  • Documentary Bill

6. What is noting of a bill of exchange according to Chapter 8 of Class 11 Accountancy?

A handy method of validating the fact that a bill or note has been dishonoured is to make a note of it. When a bill is not honoured despite being properly presented, it is always preferable for the fact to be documented by a Notary Public. It verifies the truth of disgrace in this way. When a bill is dishonoured, the holder can protest by having the fact not only documented but also verified by a Notary Public that the bill has been dishonoured.

7. What is the definition of a Promissory Note as explained in Chapter 8 of Class 11 Accountancy?

A promissory note is a written instrument (excluding a banknote or a currency note). This document includes a maker's commitment to pay a specified sum of money to the order of a specific person or bearer of the instrument. Students can study the meaning of a promissory note under the Negotiable Instruments Act of 1981, as well as the parties involved, in the Bills of Exchange Class 11 Notes provided on Vedantu’s website (vedantu.com) that can be downloaded absolutely free of cost.