CHAPTER - BIILS OF EXCHANGE AND PROMISSORY NOTES

BOE and Promissory notes both are negotiable instruments and freely transferable.

 Following are the difference between BOE an Promissory note.

Basis BOE Promissory

1.NO. of partees There are 3 Partie in BOE i.e, There are only two parties i.e,Maker
Drawer,drawee, and payee and payee.
2.Language It includes unconditional order of It includes unconditional promise of
payment payment .
3.Acceptance Acceptance is compulsory Acceptance is not compulsory
4.Drawer & Payee Drawer and Payee can be the same Maker and Payee can not be the same
person person
5.Bearer According to RBI Act, BOE can According to RBI Act, Promissory
be payable to bearer note can not be payable to bearer

Journal Entries
 Transaction related to BOE :-
1. Credit Sale and Credit Purchase
2. Bills Draw and Accept
3. Option with drawer – A .Retain b. Endorse C. Discount
4. Due date Pay(honor)

Bill not pay (Dishonor)

Renew Dishonor

Interest charge Old bill Old bill + Old bill cancel Noting Charges Amt. Received
For delay payment Cancel Interest=New bill & bed debt
5. Retirement of Bill

B/R and B/P both are representative personal a/c

Transaction Drawer Drawee Payee/Bank /Endorse
1.Purchase/sale Drawee a/c Dr. Purchase ac/c Dr -
To Sale a/c To Drawer a/c
2.Draw / Accept B/R a/c Dr. Drawer a/c Dr. -
To Drawee a/c To B/P a/c
3.Options:
(i) Retain (i)No entry (i)No Entry (i) No Entry
(ii)Endorse (ii)Endorse a/c Dr. (ii)No Entry (ii) B/R a/c Dr.
To B/R a/c To Drawer a/c
(iii)Discount (iii)Bank a/c Dr. (iii)No Entry (iii) B/R a/c Dr.
Discount a/c Dr. To discount
To B/R a/c a/c
To Drawer a/c
4.Due Date
(Bill payment)
(i)Retain (i)Cash a/c Dr. (i)B/P a/c Dr. (i) No Entry
To B/R a/c To Cash a/c
(ii)Endorse (ii)No Entry (ii)B/P a/c Dr. (ii)Cash a/c Dr.
To Cash a/c To B/R a/c
(iii)Discount (iii)NoEntry (iii)B/P a/c Dr. (iii)Cash a/c Dr.
To Cash a/c To B/R a/c
5.Renew
1.old bill cancel 1.Drawee a/c Dr. 1.B/P ac Dr. 1.Drwer a/c Dr.
/Dishonored) To B/R a/c or To Drawee a/c To B/R a/c
To Bank or
To Endorse a/c
2.Interest 2.Drawee a/c Dr. 2. Interest a/c Dr. 2. No Entry
To Interest a/c To Drawer a/c
3.New Bill 3.B/R ac Dr. 3.Drawer a/c Dr. 3. No Entry
To Drawee a/c To B/P a/c
6.Dishonour(whole bill) Drawee a/c Dr. B/P a/c Dr. Drawer a/c Dr.
To B/R a/c To Drawer a/c To B/R a/c
To Bank a/c
To Endorsee a/c
7.Noting Charges
1.Retain 1.Drawee a/c Dr. 1.Noting chg. a/c Dr. 1.No Entry
To Cash a/c To Drawer a/c
2.Endorse 2.Drawee a/c Dr. 2.Noting chg.a/c Dr. 2.Drawer a/c Dr.
To Endorsee a/c To Drawer a/c To Cash/Bank a/c
3.Bank 3.Drawee a/c Dr. 3. Noting chg.a/c Dr. 3.Drawer a/c Dr.
To Bank a/c To Drawer a/c To Cash a/c
8.Final Payment Cash a/c Dr. Drawer a/c Dr. No Entry
Bad debt a/c Dr. To Cash a/c
To Drawee a/c To Deficiency a/c
9.Retiremnet of bill Rebate a/c Dr. B/P a/c Dr. No Entry
Cash a/c Dr. To Rebate a/c
To B/R a/c To Cash a/c
 Calculation of Due Date :-
For calculation of due date , BOE /Promissory note is divided into following 2 parts
1. Demand Bill
2. Term Bill.
BOE

Demand Bill Term Bill

Period is not specified Period is specified

Payable at sight

Due date = The date at which bill Payable after date Payable after sight
is presented for payment
Due date = Date of drawn Due date= Date of acceptance
+ Term + 3 days + Term + 3 days

Period start from date of drawn period start from date of

Acceptance
Note 1 – In absence of information it is assumes that bill is payable after date of bill
Note 2 – If there is any public holiday on due date , then previous date will be due date.
Note 3 – If there is incidental holiday on due date , then next date will be due date .

 Calculation of Rebate :-
Rebate is calculated from Retirement date to Due date period.
𝑅 Period
Rebate = Bill Amt. × × .
100 365 days/12month
 Calculation of discounts on Bills discount :-
Discount is calculated from date of discount to due date
𝑅 Period
Discount = Bill Amt. × ×
100 365 days/12month
 Accommodation of Bill :-
Difference between Trade bill and Accommodation bill
Trade Bill Accommodation Bill
1.It is Valid bill 1. It is Invalid bill
2.In case of trade bill after discount whole bill is2.In case of this, the bill after discounting the
 retained by drawer Bill Drawer and drawee both share the
proceeds
3.All discount charges treated as Expense of 3. All discount charges are share between
drawer drawer and drawee
4.Incase of dishonor ,Drawer and drawee can 4. Incase of dishonor ,Drawer and drawee can
recover the amt. legally not recover the amt legally

 Additional journal in case of Accommodation

In this case proceeds (Bill amt – Discount) is distribute bill among drawer and drawee in pre-
determined proportion .
In this case drawer remits amount to drawee two times
1.After discounting = proceeds(Bill amt – discount) × Drawee share
2.Just before due date = Bill amt × Drawer share

 Cash remitted by drawer to drawee

Drawer Drawee
1.After Discounting Drawee a/c Dr. Cash ac Dr.
To Cash a/c Discount a/c Dr.
ToDiscount a/c To Drawer a/c
2.Before due date Drawee a/c Dr. Cash a/c Dr.
To Cash a/c To Drawer a/c