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Retiring of the Bill


Sometimes the acceptor is prepared to (retire) pay the Bill before the date of maturity. In such a case the drawer may allow him a concession called Rebate or Discount at certain rate calculated on the unexpired period of maturity of the bill. This discount is a gain to the acceptor and a loss to the drawer.

The accounting treatment on the retirement of a bill is similar to the accounting treatment when a bill is honoured by the acceptor on the due date in the ordinary course. The only difference between the two relates to the granting of rebate.

The following journal entries are recorded:

In the books of the holder
On retiring the acceptance and rebate allowed
Cash A/c Dr.
Rebate on bills A/c Dr.
To Bills Receivables A/c

In the books of the drawee
Bills Payable A/c Dr.
Cash A/c Dr.
To Rebate on Bills A/c

 

Problem#5
Amit sold goods Rs. 10,000 to Babli on Jan. 01, 2006 and immediately drew a bill on Babli for three month for the same amount; Babli accepted the bill and returned it to Amit. On March 04, 2006 Babli retired her acceptance under rebate of 6% per annum.

Solution
Books of Amit- Journal

Date

Particulars

L.F.

Debit

Amount

Rs.

Credit

Amount

Rs.

2006

Jan. 01

 

 

Jan. 01

 

 


Mar 04

Babli's A/c Dr.

To Sales A/c

(Sold goods to Babli)


Bills Receivable A/c Dr.

To Babli's A/c

(Received Babli's acceptance for three months)


Bank A/c Dr.

Rebate on bills A/c Dr.

To Bills Receivable A/c

(Babli retired her acceptance and rebate allowed to him)

 

 

 

 

 

 

 

 

 

 

 

 

10,000

 

 


10,000

 

 

 

9,950

50

 

 

10,000

 


1
0,000

 

 

 

 

10,000

 

The recorded entries will be posted to the following ledger acounts
 
Babli's Account
Dr.             Cr.

Date

Particulars

J.F.

Amount

Rs.

Date

particulars

J.F.

Amount

Rs.

Jan 01

Sales

 

10,000

______

10,000

Jan 06

Bills Receivables

 

10,000

______

10,000

Bills Receivables Account

Dr.             Cr.

Date

Particulars

J.F.

Amount

Rs.

Date

particulars

J.F.

Amount

Rs.

Jan 01

Sales

 

10,000

 

______

10,000

Mar 04

Cash

Rebate on bill

 

9,950

    50

______

10,000

 

Books of Babli

Journal

Date

Particulars

L.F.

Debit

Amount

Rs.

Credit

Amount

Rs.

2006

Jan. 01

 

 

Jan. 01

 

 

 

 

Mar 04

 

 

 

 

Purchases A/c Dr.

To Amit A/c

(Purchased goods from Amit)

Amit's A/c Dr.

To Bills Payable A/c

(Accepted Amit's draft payable after

three months)

Bill Payable A/c Dr.

To Cash A/c

To Rebate on bills A/c

(Acceptance in favour of Amit retired

and rebate received)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

10,000

 

 

10,000

 

 

 


10,000

 

 

 

 

10,000

 

 

10,000

 

 

 

 

9,950

50

 


Amit's Account

Dr.             Cr.

Date

Particulars

J.F.

Amount

Rs.

Date

particulars

J.F.

Amount

Rs.

Jan 01

Bills Payable

 

10,000

______

10,000

Jan 04

Purchases

 

10,000

______

10,000





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