Journal Entries for Bills of Exchange in detail

What is Bill of Exchange ?

A bill of exchange is a negotiable instrument which contains an unconditional order requiring a certain person to pay a certain sum of money on a stipulated date. There are 3 parties that are involved in a Bill of Exchange namely, Drawee , Drawer & Payee.

JOURNAL ENTRIES FOR BILLS OF EXCHANGE

Journal entry for bill of exchange is posted differently in the books of both drawee and the drawer. These are as below –

  • When goods are sold and purchased:

DRAWER’S BOOKS

Drawee’s personal A/c Dr.      …….

To Sales A/c Cr.        …….

DRAWEE’S BOOKS

Purchase A/c Dr.      ……….

To Drawer’s personal A/c  Cr.   …………

  • When bill is drawn & accepted:

DRAWER’S BOOKS

Bill Receivable A/c Dr.   …….

To Drawee’s personal A/c   Cr.    …….

DRAWEE’S BOOKS

Drawer’s personal A/c Dr. …….

To Bills Payable A/c  Cr.         ……..

  • Bill retained till maturity and Payment received :

Sometimes drawer is not in immediate need of cash. He retains the bill with himself till due date and presents for payment. On due date, if bill is paid by the drawee, it is said that bill is honored.

DRAWER’S BOOKS

Bank A/c Dr.   …..

To Bills Receivable A/c  Cr.  …..

DRAWEE’S BOOKS

Bills Payable A/c Dr.  ……..

To Bank A/c  Cr.            …….

  • Bill Discounted with bank :

The act of selling bill of exchange to banker in consideration of small charges (discount) is called “Discounting of Bill of Exchange”.

DRAWER’S BOOKS

Bank A/c Dr.  …..

Discount on Bill A/c Dr.   …….

To Bills Receivable A/c   Cr.    ……

DRAWEE’S BOOKS

No entry to be passed

  • Bill Endorsed to third Party:

 The act of transferring bill from one person to another for the settlement of debts is called “Endorsement” of bill. The person who transfers or endorses the bill is called endorser and the person to whom bill is transferred or endorsed is called endorsee.

DRAWER’S BOOKS

Endorsee’s A/c Dr.   …..

To Bills Receivable A/c Cr.   …….

DRAWEE’S BOOKS

No Entry to be passed

  • Bill Dishonoured on Maturity :

A bill is said to be dishonoured when the drawee fails to make the payment on the date of maturity.

DRAWER’S BOOKS

  1. If bill is retained till maturity –

Drawee’s A/c Dr.  …..

To Bill Receivable A/c Cr.  ……

  1. If bill is discounted with bank –

Drawee’s A/c Dr.  …..

To Bank A/c Cr.      ……

  1. If the bill was endorsed –

Drawee’s A/c Dr.  …..

To Endorsee’s A/c Cr.   ……

DRAWEE’S BOOKS

Bills Payable A/c Dr. …..

Noting charges A/c Dr. …….

To Drawer’s A/c   Cr.          ……..

In case of dishonour of bill the same journal entry will be passed in the Drawee’s books.

Accounting & Finance for Banking

Principles & Practices of Banking Module E Pdf

Free
Module E PPB ePDFs available in our android app. Get them all at https://iibf.info/app

Accounting and Finance for Banking Module A Pdf

Free
Accounting and finance for bankers all ePDFs are available in our an app. Get them all at https://iibf.info/app

Accounting and Finance for Banking Module A Pdf

Free
Accounting and finance for bankers all ePDFs are available in our an app. Get them all at https://iibf.info/app

Leave a reply

Please enter your comment!
Please enter your name here

Popular

Free Live Classes

spot_img

More from author

All about KYC/AML Exam by IIBF

All about KYC/AML Exam by IIBF The KYC/AML is a professional certification exam in Anti Money Laundering and Know your customer conducted by the Indian...

CCP- Certified Credit Professional Course by IIBF

IIBF CCP (Certified Credit Professional) exam is an All-India Exam directed by the Indian Institute of Banking and Finance (IIBF) to select competent candidates...

What is Digital Banking in Detail

Digital Banking is the automation of traditional banking services. It is defined as banking done through the digital platform, doing away with all the...

Digital Banking Course By IIBF

Digital Banking Course By IIBF Certificate course in Digital Banking is conducted by IIBF to provide practicing bankers a sound foundation in the digital banking...