Drawing, Acceptance, and Payment of Bills of Exchange
Drawing, Acceptance, and Payment of Bills of Exchange:
Learning Objectives:
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Make journal entries in the books of creditor and debtor at the time of drawing, acceptance, and payment of a bill of exchange.
When a bill is written it is known as “drawing” a bill. The person who draws it is the creditor and the person to whom it is addressed is the debtor. The creditor and the debtor are also known as the drawer and the drawee respectively. When the drawee signifies his assent to the order in writing he becomes the acceptor of the bill if exchange. It is said to be discharged when the acceptor makes the actual payment on the bill on the maturity date. Journal entries in the books of drawer and drawee are as under:
Creditor’s Books
| (a) When a bill of exchange is drawn and accepted. |
| Bill receivable account [Dr] |
| To Acceptor’s personal account [Cr.] |
| (b) On the due date the acceptance will be presented to the acceptor for payment. If the payment is received directly: |
| Cash account [Dr.] |
| To Bills receivable account [Cr.] |
Debtor’s Books:
| (a) When the bill is accepted by the drawee. |
| Personal account of the drawer [Dr.] |
| To Bills payable account [Cr.] |
| (b) When the bill is met on maturity. |
| Bills payable account [Dr.] |
| To Cash account [Cr.] |
Example:
X sold goods to Y for $1,000 on 1st January 1991 and draws on Y a bill of exchange at three months for this amount. Y accepts the bill and returns it to X. The bill is dully met at maturity. Show the journal entries to record the transactions in both the parties books
Journal Entries in the Books of X
| 1991 | $ | $ | ||
| Jan. 1 | Y | 1,000 | ||
| To Sales account | 1,000 | |||
| (Goods sold on credit) | ||||
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| Jan. 1 | Bills receivable account | 1,000 | ||
| To Y | 1,000 | |||
| (Acceptance received) | ||||
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| Apr. 4 | Cash account | 1,000 | ||
| To Bills receivable account | 1,000 | |||
| (Amount of the bill received) | ||||
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|
Journal Entries in the Books of Y
| 1991 | $ | $ | ||
| Jan. 1 | Purchases account | 1,000 | ||
| To X | 1,000 | |||
| (Goods purchased on credit) | ||||
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|
||||
| Jan. 1 | X | 1,000 | ||
| To Bills payable account | 1,000 | |||
| (Acceptance given) | ||||
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| Apr. 4 | Bills payable account | 1,000 | ||
| To Cash account | 1,000 | |||
| (Acceptance paid) | ||||
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You may also be interested in other articles from “accounting for bills of exchange page” chapter:
- Definition and Explanation of Bill of Exchange
- Advantages of a Bills of Exchange
- How a Bill of Exchange Functions
- Promissory Note
- Difference between Bill of Exchange and Promissory Note
- Difference Between Bill of Exchange and Cheque/Check
- Recording Transactions of Bill of Exchange
- Drawing, Acceptance, and Payment of Bill of Exchange
- Discounting of Bill of Exchange
- Bills of Exchange for Collection
- Endorsement of a Bill of Exchange
- Dishonour of a Bill of Exchange
- Renewal of a Bill of Exchange
- Retiring of a Bill of Exchange
- Accommodation Bill of Exchange
- Insolvency of the Acceptor in a Bill of Exchange
Other Related Accounting Articles:
- Endorsement of Bill of Exchange
- Retiring of a Bill of Exchange
- Renewal of a Bill of Exchange
- Dishonour of a Bill of Exchange
- Accommodation Bills of Exchange
- Bill of Exchange for Collection
- Discounting a Bill of Exchange
- Recording Transactions of Bill of Exchange
- How a Bill of Exchange Functions
- Difference Between Bill of Exchange and Cheque/Check
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