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In the Books of Acceptor/Promissor


The following journal entries are recorded in the books of the acceptor or promissor under all the four alternatives. It makes no difference whether the bill is retained discounted, endorsed or pledged.

 

On accepting the bill
Creditor's A/c Dr.
To Bills Payable A/c

On Maturity of the bill
Bills Payable A/c Dr.
To Bank A/c

 

1. When the drawer retains the bill with him till the date of its maturity and gets the same collected directly

Transaction
 


Sale/Purchase of goods

 

Receiving/Accepting the bill

 


Collection of the bill

Books of Creditor/Drawer


Debtor's A/c Dr.

To Sales A/c

Bills Receivable A/c Dr.

To Debtor's A/c


Cash/Bank A/c Dr.

To Bills Receivable A/c

Books of Debtor/Acceptor



Purchases A/c Dr.

To Creditor's A/c

Creditor's A/c Dr.

To Bills Payable A/c


Bills Payable A/c Dr.

To Cash/Bank A/c

2. When the bill is retained by the drawer with him and sent to bank for collection a few days before maturity

Transaction


Sale/Purchase of goods

 

Receiving/Accepting the bill


Sending the bill for collection

 


On Receiving from the bank advice that the bill has been

Books of Creditor/Drawer

Debtor's A/c Dr.

To Sales A/c


Bills Receivable A/c Dr.

To Debtor's A/c

Bills sent for

collection A/c Dr.

To Bill Receivable A/c


Bank A/c Dr.

To Bill Sent for

collected Collection A/c

 

Books of Debtor/ Acceptor


Purchases A/c Dr.

To Creditor's A/c


Creditor's A/c Dr.

To Bills Payable

A/No entry

 

 



Bills Payable A/c Dr.

To Bank A/c

3. When the drawer gets the bill discounted from the bank

Transaction



Sale/Purchase of goods

 

Receiving /Accepting the bill


Discounting the bill

 




On maturity of the bill

Books of Creditor/Drawer


Debtor's A/c Dr.

To Sales A/c


Bills Receivable A/c Dr.

To Debtor's A/c

Bank A/c Dr.

Discount A/c Dr.

To Bills Receivable A/c


No entry

Books of Debtor/ Acceptor



Purchases A/c Dr.

To Creditor's A/c


Creditor's A/c Dr.

To Bills payable A/c

No entry

 

 


Bills payable A/c Dr.

To Bank A/c

4. When the bill is endorsed by the drawer in favour of his creditor

Transaction


Sale/Purchase of goods

 


Receiving /Accepting the bill



Endorsing the bill

 

On maturity of the bill

Books of Creditor/Drawer


Debtor's A/c Dr.

To Sales A/c


Bills Receivable A/c Dr.

To Debtor's A/c




Creditor's A/c Dr.

To Bills Receivable A/c


No entry

Books of Debtor/ Acceptor


Purchase A/c Dr.

To Creditor's A/c



Creditor's A/c Dr.

To Bills payable A/c



No entry

 


Bills payable A/c Dr.

To Bank A/c

     
The accounting treatment to be made in the books of the drawer and the acceptor under all the four cases is explained through the following example:

 

Problem#1
Amit sold goods for Rs.20,000 to Sumit on credit on Jan 01, 2006. Amit drew a bill of exchange upon Sumit for the same amount for three months. Sumit accepted the bill and returned it to Amit. Sumit met his acceptance on maturity. Record the necessary journal entries under the following circumstances:
  1. Amit retained the bill till the date of its maturity and collected directly
  2. Amit discounted the bill @ 12% p.a from his bank
  3. Amit endorsed the bill to his creditor Ankit
  4. Amit retained the bill and on March, 31 2006 Amit sent the bill for collection to its bank. On April 05, 2006 bank advice was received.
Solution
Books of Amit- Journal
  1. When the bill was retained till its maturity:

Date

Particulars

L.F.

Debit

Amount

Rs.

Credit

Amount

Rs.

2006

Jan 01

 

 

 

 

Jan 01

 

 



Apr 05

Sumit's A/c dr.

To Sales A/c

(Sold goods to sumit's on credit)

 

Bills Receivable A/c Dr.


To Sumit's A/c

(Received sumit's acceptance payable after three months)

 


Bank A/c Dr.

To Bills Receivable A/c

(Sumit met his acceptance on maturity)

 

20,000

 

 

 

 



20,000

 

 

 




20,000

 



20,000

 

 

 

 




20,000

 

 

 


20,000

  1. When the bill was discounted from the book.

Date

Particulars

L.F.

Debit

Amount

Rs.

Credit

Amount

Rs.

2006

Jan 01

 

 

 

Jan 01

 

 

 

 

Jan 01

 

 

 

Sumit's A/c dr.

To Sales A/c

(Sold goods to sumit's)

 

 

Bills Receivable A/c Dr.

To Sumit's A/c

(Received sumit's acceptance three months)

 


Bank A/c Dr.

Discount A/c Dr.

To Bills Receivable A/c

(Sumit acceptance discounted with the bank)

 

20,000

 

 

 

 

20,000

 

 

 

 

19,400

    600

 



20,000

 

 

 

 

20,000

 

 

 

 

 

20,000

  1. When Amit endorsed the bill in favour of his creditor Ankit.

Date

Particulars

L.F.

Debit

Amount

Rs.

Credit

Amount

Rs.

2006

Jan 01

 

 


Jan 01

 

 

 

 

Jan 01

Sumit's A/c dr.

To Sales A/c

(Sold goods to sumit's on credit)

 

Bills Receivable A/c Dr.

To Sumit's A/c

(Received sumit's acceptance payable after three months)

 

Ankit's A/c Dr..

To Bills Receivable A/c

(Sumi acceptance endorsed in favour ofAnkit)

 

20,000

 

 

 

 

20,000

 

 

 

 

20,000

 



20,000

 

 

 

 



20,000

 

 

 

 

20,000

  1. When the bill was sent for collection by Amit to the bank.

Date

Particulas

L.F.

Debit

Amount

Rs.

Credit

Amount

Rs.

2006

Jan 01

 

 

 

 

Jan 01

 

 

 

Mar 31

 

 

 





Apr 05

Sumit's A/c dr.

To Sales A/c

(Sold goods to sumit's on credit)

 

Bills Receivable A/c Dr.


To Sumit's A/c

(Received sumit's acceptance payable after three months)


Bills Sent for Collection A/c Dr.

To Bills Receivable A/c

(Bills Sent for collection)

 

BankA/c Dr.

To Bills sent for collection A/c

(Bills sent for collection collected by the bank)

 

20,000

 

 

 

 



20,000

 

 

 

 

20,000

 

 

 



20,000

 



20,000

 

 

 

 



20,000

 

 

 

 


20,000

 

 

 



20,000

 

The following journal entries will be made in the books of Sumit under all the four circumstances:
 
In the books of Sumit
Journal

Date

Particulars

L.F.

Debit

Amount

Rs.

Credit

Amount

Rs.

2006

Jan 01

 

 



Jan 01

 

 

 


Apr 04

Purchases A/c Dr.

To Amit's A/c

(Purchased goods from Amit on Credit)

 

Amit's A/c Dr.

To Bills Payable A/c

(Accepted bills drawn by Amit payable after three months)

Bills Payable A/c Dr.

To Bank A/c

(met acceptance on maturity)

 

20,000

 

 

 


20,000

 

 

 



20,000

 



20,000

 

 

 


20,000

 

 

 

 

20,000





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