DEPARTMENT OF TECHNICAL EDUCATION

ANDHRA PRADESH

Name of the staff member : Sreenivasa Rao B.

Designation : Lecturer in CCP
Branch : COMMERCIAL AND COMPUTER
PRACTICE
Institute : S.U.V.R&S.R GPW, Ethamukkala
Semester : III
Subject Name : Accountancy - II
Subject Code : CCP 302
Major Topic : Bills of Exchange
Duration : 50 minutes
Sub Topic : Negotiable Instruments – Bills of
Exchange
Teaching Aids : PPTs
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Objectives :

On completion of this class, you will be

able to understand :
 Meaning of Negotiable Instruments
 Different types of Negotiable Instruments
 Bills of Exchange – Definition
 Impartant Parts of a Bill of Exchange

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KNOWN TO UNKNOWN

 Credit is unavoidable in business

 Name of the different modes of payment

 What are the negotiable instruments used as a

medium of payment

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 INTRODUCTION

 Business Transactions may be cash or credit

 For expansion of business, Credit is unavoidable in
business
 When goods are sold on credit, seller expects a promise
from buyer
 Promise may be oral or written undertaking from buyer
 This written undertaking may be a Bill of Exchange or
Promissory Note
 These documents are called Negotiable Instruments
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Negotiable Instruments - Meaning
A negotiable instrument is used in all business
transactions as a medium of payment

 It is a transferable instrument from one person to

another

 “Negotiable instrument means Promisssary Notes,

Bills of Exchange or Cheque, payble either to order
or to bearer”

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Classification of Bills of Exchange

a) Place

b) Purpose

c) Documents

d) Parties or Payee

e) Time

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Bills of Exchange - Definition

 Section 5 of the Indian Negotiable Instrument Act,

1881 defines a Bill of Exchange as
 “an instrument in writing
 containing an unconditional order,
 signed by the maker,
 directing a certain person to pay
 a certian sum of money only to or to order of a
certain person or to the bearer of the instrument”

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Bill of Exchnage – Meaning

 A bill of exchange contains an order

 from the creditor to debitor

 to pay a specified amount

 to a person mentioned therein

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Parties to Bills of Exchange
 Drawer :
 Drawee:
 Payee:

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Parties to Bills of Exchange
i) Drawer :
The maker of a bill is called the ‘Drawer’. He is
generally creditor or seller
ii) Drawee:
The person on whom the bill is drawn is called the
‘Drawee’. He is also known as acceptor as he accepts
the bill
iii) Payee:
The person who is entitled to receive payment is
called the ‘Payee’. Sometimes the drawer himself is
the payee
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 Specimen of a bill of
exchange is as Follows :-
Rs. 2,00,000 Ongole,
March 1, 2008.

Three months after date pay to Mr. B. Balu (Payee)

or order the sum of Rupees two lakhs only, for value
received.

Stamp
To Accepted (Sd) B.Vijay
Mr. K.V.S. Rao , K.V.S.Rao Drawer
Drawee / Accepter

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 Important Parts of a Bill of Exchange

1 DATE:

Bill of Exchange starts with the date written on the top

right hand corner

It helps in calculating due date of the bill

Due date of bill is calculatated by adding to the date of

the bill, the period of the bill plus three days
of grace period CCP-302 - 36 12
2 Tenor of the bill

The period after which a bill becomes payable is

called ‘the term of the bill’ or the ‘tenor of the bill’

 For example if a bill is drawn for three months then

the tenor of the bill will be 3 months

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3 Amount

 The amount for which the bill is prepared must be given

both in figures and in words

4 Stamp

 The value of revenue stamps to be affixed on the bill

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5 Acceptance
 A bill before its acceptance by the drawee is known
as a draft
 After accepted by the drawee it is called a bill
 To complete a bill, acceptance by the drawee is
necessary
 Acceptance means writing the word. ‘Accepted’ and
putting signature by the drawee

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Grace Period:
A bill of Exchange may also be either ‘payble on
demand’ or at ‘sight’

 No days of grace are allowed in case of Demand

or sight bills

 In case of other bills three days are added to the

term of the bill to arrive at the due date

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 Grace period contd
 For example if a bill is drawn on 11th March,
2008, payable after 3 months, the due date will
be 14th June, 2008

 When the day of maturity falls due on a Public

holiday, the instrument shall become due on
proceeding business day

 When Maturity falls due on an emergency holiday

, the instrument shall become due on the
succeeding business day
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 Summary
 In case of Credit transaction, the buyer of the
goods promises the seller that he will repay the
amount of goods purchased after a certain period
 The promise of the debtor can either be oral or in
writing. The promise in writing is of three forms i.e.,
Bill of Exchange, Hundi, Promisory Note
 The need for Bills of Exchange arises out of Credit
sale transaction

CCP-302 - 36 18
 Summary… contd..

 A bill of exchange is an instrument in writing

 containing an unconditional order,

 signed by the maker,

 directing a certain person

 to pay a certain sum of money

 only to or to the bearer of the instrument

CCP-302 - 36 19
Summary… contd..
There are three parties to a bill of exchange –
 Drawer

 Drawee
 Payee

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 Summary… contd..

Important parts of a bill of exchange:

 date
 term
 amount
 stamp
 acceptance

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 Quiz

Bill of Exchange arises when goods are sold -

2. On Cash

3. On Credit

4. Barter System

5. None of the above

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Frequently Asked Questions

1. Define Bills of Exchange

2. Who are parties to a Bills of Exchange?

3. What do you know about Negotiable instrument?

4. Draw the specimen of a Bill of Exchange

5. List out the important contents of a bill of

Exchange

6. How do you calculate Due Date of a bill

7. What are days of Grace

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