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Accommodation Bills

Usually a bill of exchange is drawn with consideration; the drawer makes an order to the drawer to make payment for the goods supplied to him. Sometime a bill of exchange can be accepted without consideration just to help a friend for short term finance or for mutual benefit.

These bills are discounted by the bank and the proceeds are either retained by the drawer or shared by the two-drawer and drawee. Thus, “accommodation” bill is drawn, accepted without consideration, to simply obligate a party and help him to obtain money by discounting it”.

These bills are also known as “Kite Bills”. For example, Ram Prasad is in need of money for a short period. He requests his friend Hariprasad for help; he too has no money and asks him (Ramprasad) to write a bill on him which he will accept. Ramprasad will discount the bill from the bank and use the amount of the bill and Hariprasad will meet his acceptance. Entries are passed in the books of two parties exactly in the way already pointed out for ordinary bills. The only additional entry to be passed is for sending the remittance to other party and also debiting the other party with shared amount of discount.

Illustration 9


On 1st July, 2011 G drew a bill for 80,000 for 3 months on H for mutual accommodation. H accepted the bill of exchange. G had purchased goods worth 81,000 from J on the same date. G endorsed H’s acceptance to J in full settlement. On 1st September, 2011, J purchased goods worth 90,000 from H. J endorsed the bill of exchange received from G to H and paid 9,000 in full settlement of the amount due to H. On 1st October, 2011, H purchased goods worth 1,00,000 from G. H paid the amount due to G by cheque. Give the necessary Journal Entries in the books of H.


Illustration 10


For the mutual accommodation of ‘X’ and ‘Y’ on 1st April, 2011, ‘X’ drew a four months’ bill on ‘Y’ for 4,000. ‘Y’ returned the bill after acceptance of the same date. ‘X’ discounts the bill from his bankers @ 6% per annum and remit 50% of the proceed to ‘Y’. On due date ‘X’ is unable to send the amount due and therefore ‘Y’ draws a bill for 7,000, which is duly accepted by ‘X’. ‘Y’ discounts the bill for 6,600 and sends 1,300 to ‘X’. Before the bill is due for payment ‘X’ becomes insolvent. Later 25 paise in a rupee received from his estate.

Record Journal entries in the books of ‘X’.



Illustration 11


Anil draws a bill for 9,000 on Sanjay on 5th April, 2011 for 3 months, which Sanjay returns it to Anil after accepting the same. Anil gets it discounted with the bank for 8,820 on 8th April, 2011 and remits one-third amount to Sanjay. On the due date Anil fails to remit the amount due to Sanjay, but he accepts a bill for 12,600 for three months, which Sanjay discounts it for 12,330 and remits 2,220 to Anil. Before the maturity of the renewed bill Anil becomes insolvent and only 50% was realized from his estate on 15th October, 2011.

Pass necessary Journal entries for the above transactions in the books of Anil.




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