Bills Of

Exchange
 Introduction
•
Negotiable Instrument
• According To Section 13(1) Of The
Negotiable Instrument Act, 1881,
“ A Negotiable Instrument
Means A Promissory Note, Bill Of
Exchange Or Cheque Payable Either
To Order Or To Bearer”
 Types Of Negotiable
Instrument
• Recognized By • Recognized By
Statute Usage Or Custom

1. Bills Of 1. Hundis
Exchange 2. Share Warrants
2. Promissory Notes 3. Dividend Warrants
4. Bearer Debentures
3. Cheques
 Bills Of Exchange
• According to section 5 of Negotiable
Instrument Act,
• “A Bill Of Exchange is an instrument
in writing containing an unconditional
order, signed by the maker , directing a
certain person to pay a sum of money
only to or to the order of a certain person
or to the bearer of the instrument”
 Specimen Of A Bill Of
Exchange
JAMMU

27th Nov. 2006

Three months after due date, pay XYZ or order, the

Sum of Rs 1000(one thousand only) for value received. Stamp

To,
M/S ABC
Gandhi Nagar
Jammu
 Parts Of A Bill Of
Exchange
• Date
• Term
• Amount
• Stamp
• Parties
 Special features
1. A Bill Of Exchange is an instrument in writing
2. It must be signed by the maker
3. It contains an unconditional order
4. The order must be to pay money and money only
5. The sum payable must be specific
6. The amount must be paid within a stipulated time
7. The name of the drawee must be clearly mentioned
8. It must be dated and stamped
 Parties to a Bill Of
Exchange
Drawer
The person who draws or writes the
Bill Of Exchange is called the
Drawer. The Drawer must be the
seller or creditor to whom the
money is owing
 Drawee

• The Drawee is the person on

whom the bill is drawn. He is
the purchaser or debtor who is
ordered by the Drawer to pay
the amount
 Payee
• The person who has the right
to receive the amount of the
bill is called the Payee, the
Payee may be a third person or
the Drawer himself
 Advantages of Bill of
Exchange
1. A Bill of Exchange is used in settlement
of debts
2. It fixes the date of payment
3. It is a written and signed
acknowledgement of debt
4. A debtor enjoys full period of credit
5. A drawer can convert the bill into cash
by getting it discounted with the bank
 Kinds of Bills Of
Exchange

• Inland Bill • Foreign

Bill
 Kinds of Bills Of
Exchange

• Trade Bills • Accommodatio

n Bills
 Kinds of Bills Of
Exchange

• Demand • Time Bill

Bill
 Accounting entries - Summary

When bill is retained till maturity

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 Accounting entries - Summary

When bill is discounted with bank

.com
 Accounting entries - Summary

When bill is endorsed to a third party

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 Accounting entries - Summary

When bill is retained till maturity but dishonoured

Transaction Books of Creditor/Debtor Books of

Acceptor/Drawee

Sale/Purchase of goods Debtor’s a/c Dr Purchase a/c

To Sales a/c Dr
To Creditor
Receiving/ Accepting the Bills Receivable a/c Dr Creditor a/c Dr
bill To Debtor To Bills Payable

On dishonor and noting Debtor a/c Dr Bills Payable a/c Dr

charges incurred Noting Charges a/c Dr
To Bills Receivable To Creditor
To Cash

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 Accounting entries - Summary

When bill is discounted but is subsequently dishonoured

Transaction Books of Creditor/ DebtorBooks of Acceptor

Sale/Purchase of Debtor’s a/c Dr Purchase a/c Dr

goods To Sales a/c To Creditor
Bills Receivable a/c
Receiving/ Accepting the Dr Creditor a/c Dr
bill To Debtor To Bills Payable

On discounting the Bank a/c Dr

bill Discount a/c Dr No entry
To Bills Receivable
Bills Payable a/c Dr
On dishonour and Debtor a/c Dr Noting Charges a/c
noting To Bank Dr
To Creditor
charges incurred
 Accounting entries - Summary

When bill is endorsed to a creditor but is subsequently dishonoured

Transaction Books of Creditor/ DebtorBooks of Acceptor

Sale/Purchase of Purchase a/c Dr

goods Debtor’s a/c Dr To Creditor
To Sales a/c
Receiving/ Bills Receivable a/c Dr Creditor a/c Dr
Accepting To Debtor To Bills Payable
the bill
On endorsing of the Creditor a/c Dr
bill To Bills Receivable No entry

On dishonor and Debtor a/c Dr Bills Payable a/c Dr

noting charges To Creditor Noting Charges a/c Dr
incurred (bill amount + noting To Creditor
charges
Thank You