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Accounting for Bills of Exchange

The bill which is received from the debtor can be dealt in the following three ways:

  • It could be held till maturity
  • It can be discounted with a banker
  • It can be endorsed to a creditor

If the bill is held till maturity, on the maturity date, the bill might be honoured or it might be dishonoured and accordingly, the entries will be passed:
 

In the books of drawer

In the Books of Drawee


 

Illustration 1

 

X sold goods to Y for ₹ 2,000 on 1st January, 2012 and draws, a bill of exchange on Y for three months for this amount. Y accepts the bill and returns it to X. Show the journal entries to record the transactions in both the parties’ books, when on the maturity date;

  • The bill is honoured
  • The bill is dishonoured

Solution:

 

Journal entries in the books of X


 

Journal entries in the books of Y
 





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