Accounting Problem: Bills of Exchange
Archana purchased goods from Babita on credit for Rs. 20,000. On next day Archana paid Rs. 10,000 to Babita and accepted a bill drawn by Babita for the balance amount for four months. Babita discounted the bill with her bank for Rs. 9600/-. Before the due date Archana approached Babita with a request to renew the Bill. Babita agreed with the condition that Archana should pay Rs. 6000 along with interest of Rs. 120 and accept a new bill for the balance. These arrangements were duly carried out. New bill is met on the due date. Pass journal entries in the books of Archana.
Solution:
In the Books of Archana (Drawee)
Journal Entries
Date Particulars L.F. Debit (Rs.) Credit (Rs.) (1) Purchases A/c ...Dr.
To Babita's A/c
(Being goods purchased on credit)20,000 20,000 (2) Babita's A/c ...Dr.
To Cash/Bank A/c
To Bills Payable A/c
(Being part payment made and bill accepted for the balance)20,000 10,000
10,000(3) Bills Payable A/c ...Dr.
To Babita's A/c
(Being old bill cancelled before maturity for renewal)10,000 10,000 (4) Interest A/c ...Dr.
To Babita's A/c
(Being interest due on the renewed bill)120 120 (5) Babita's A/c ...Dr.
To Cash/Bank A/c
(Being part payment of Rs. 6,000 made along with interest Rs. 120)6,120 6,120 (6) Babita's A/c ...Dr.
To Bills Payable A/c
(Being new bill accepted for the remaining balance)4,000 4,000 (7) Bills Payable A/c ...Dr.
To Cash/Bank A/c
(Being new bill honored on the due date)4,000 4,000 Note:
- Discounting of bill: No entry is passed in the books of the drawee (Archana) when the drawer (Babita) discounts the bill with the bank.
- Cash Payment during Renewal: Rs. 6,000 (Principal) + Rs. 120 (Interest) = Rs. 6,120
- New Bill Balance Amount: Original Bill (Rs. 10,000) - Part Payment (Rs. 6,000) = Rs. 4,000