Drawing, Acceptance, and Payment of Bills of Exchange

Drawing, Acceptance, and Payment of Bills of Exchange:

Learning Objectives:

  1. 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.]


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)

Jan. 1 Bills receivable account 1,000
     To Y 1,000
(Acceptance received)

Apr. 4 Cash account 1,000
     To Bills receivable account 1,000
(Amount of the bill received)

Journal Entries in the Books of Y

1991 $ $
Jan. 1 Purchases account 1,000
     To X 1,000
(Goods purchased on credit)

Jan. 1 X 1,000
     To Bills payable account 1,000
(Acceptance given)

Apr. 4 Bills payable account 1,000
     To Cash account 1,000
(Acceptance paid)

You may also be interested in other articles from “accounting for bills of exchange page” chapter:

  1. Definition and Explanation of Bill of Exchange
  2. Advantages of a Bills of Exchange
  3. How a Bill of Exchange Functions
  4. Promissory Note
  5. Difference between Bill of Exchange and Promissory Note
  6. Difference Between Bill of Exchange and Cheque/Check
  7. Recording Transactions of Bill of Exchange
  8. Drawing, Acceptance, and Payment of Bill of Exchange
  9. Discounting of Bill of Exchange
  10. Bills of Exchange for Collection
  11. Endorsement of a Bill of Exchange
  12. Dishonour of a Bill of Exchange
  13. Renewal of a Bill of Exchange
  14. Retiring of a Bill of Exchange
  15. Accommodation Bill of Exchange
  16. Insolvency of the Acceptor in a Bill of Exchange

Other Related Accounting Articles:

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