Endorsement of Bill of Exchange
Endorsement of Bill of Exchange:
Learning Objectives:
-
What are the journal entries in the books of drawer, acceptor and endorsee when a bill of exchange is endorsed by the drawer?
When a bill of exchange is negotiated i.e., transferred from one person to another person so as to constitute the transferee the holder of a bill, each person through whose hands it passes, must write his name on the back of the bill. This is know as the “endorsement of a bill of exchange“. Some times the drawer of the bill does not keep the bill with him until the date of the maturity. He endorses it to some other party in payment of the debt due from him. When the bill is endorsed to any other party the journal entries will be:
Drawer’s Books
When a bill of exchange is endorsed: |
Endorsee’s personal account [Dr.] |
To Bills receivable account [Cr.] |
Acceptor’s Books:
His books remain unaffected. He will pay it on the due date to the holder and usual entry for the payment will be passed:
Endorsee’s Books:
When he will receive an endorsed bill, he will treat it just like an ordinary bill:
Bill receivable account [Dr.] |
To Transfer’s personal account [Cr.] |
Example:
A bill for $2,000 is drawn by P on Q and accepted by the later. P transfers it to his creditor R. On the due date the acceptance is duly met.
Record the above transactions in the books of P, Q and R.
Journal Entries in the Books of P
Bills receivable account | 2,000 | ||
To Q | 2,000 | ||
(Acceptance received) | |||
|
|||
R | 2,000 | ||
To Bank for collection account | 2,000 | ||
(Bill endorsed) | |||
|
Journal Entries in the Books of Q
P | 2,000 | ||
To Bills payable account | 2,000 | ||
(Acceptance given) | |||
|
|||
Bills payable account | 2,000 | ||
To Cash account | 2,000 | ||
(Bill paid) | |||
|
Journal Entries in the Books of R
Bill receivable account | 2,000 | ||
To P | 2,000 | ||
(Bill received from from a debtor – Q) | |||
|
|||
Cash account | 2,000 | ||
To Bill receivable account | 2,000 | ||
(amount of the bill received) |
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:
- Drawing, Acceptance, and Payment of Bills of Exchange
- Retiring of a Bill of Exchange
- Renewal of a Bill of Exchange
- Dishonour of a Bill of Exchange
- Discounting a Bill of Exchange
- Bill of Exchange for Collection
- Accommodation Bills of Exchange
- Recording Transactions of Bill of Exchange
- Definition and Explanation of Bill of Exchange
- Difference Between Bill of Exchange and Promissory Note
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