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If the Bill is Discounted With a Banker

  • If the holder of a bill is in need of money before the due date of the bill, he may discount the bill with the bank. This procedure is called discounting of the bill.
  • The amount deducted by the bank from the face value of the bill is called “discount” Such discount is an expenses and debit to profit and loss account
  • The discount is usually calculated at a certain rate per annum on the amount of the bill.

The accounting entries will be as follows:

In the books of drawer

In the Books of the Drawee

The acceptor has no concern with the discounting of the bill. He has to pay it on the due date to the holder, whoever may be the holder, and there will be no journal entry for discounting of the bill of exchange.

  • Discounting on bills is calculated for the unexpired period of the bill.
  • Unexpired periods = date of discounting to due date.

Illustration 2


X draws a three month bill for ₹ 2,000 on Y on 1st January, 2012 for the value received. Y accepts it and returns it to X, who discounts it on 4th January, 2012 with his bank at 6 per cent per annum. The acceptance is duly met by Y on the due date. Record the transactions in the books of X and Y, when:

  • The bill is honoured
  • The bill is dishonoured



Journal entries in the books of X

Calculation of discount: 2000 × 6/100 × 3/12


Journal entries in the books of Y

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