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In the Books of Drawer/Promissor


A bill receivable can be treated in the following four ways by its receiver.
  1. He can retain it till the date of maturity, and
    1. Collect it on date of maturity directly, or
    2. Collect it through the banker.
  2. He can get the bill discounted from the bank.
  3. He can endorse the bill in favour of his Creditor.
The accounting treatment in the books of receiver under all the four alternatives is given below under the assumption that the bill is duly honoured on maturity by the acceptor.
  1. When the bill of exchange is retained by the receiver with him till date of its maturity:

On receiving the bill

Bills Receivable A/c Dr.

To Debtors A/c

 

On maturity of the bill

Cash/Bank A/c Dr.

To Bills Receivable A/c

 

When the bill of exchange is retained by the receiver and sent to bank for collection a few days before maturity:

 

On sending the bill for collection
Bills Sent for Collection A/c Dr.
To Bills Receivable A/c

On receiving the advice from the bank that the bill has been collected
Bank A/c Dr.
To Bills Sent for Collection A/c
  1. When the receiver gets the bill discounted from the bank:
On receiving the bill
Bills Receivable A/c Dr.
To Debtors A/c

On discounting the bill
Bank A/c Dr.
Discount A/c Dr.
To Bills Receivable A/c

On Maturity
No entry is recorded because the bill becomes the property of the bank, therefore, the bank collects the amount of the bill from the acceptor and no journal entry is recorded in the books of the drawer.
  1. When the bill is endorsed by the receiver in favour of his creditor:
On receiving the bill
Bills Receivable A/c Dr.
To Debtor's A/c

On endorsing the bill
Creditor's A/c Dr.
To Bills Receivable A/c

On Maturity
No entry is recorded because the bill has been transferred in favour of the creditor; therefore the creditor becomes its owner and will receive the payment on maturity. Hence, no entry is recorded in the books of drawer or endorser.




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