Accounting Problem: Bills of Exchange
Minal draws a bill on Usha for Rs. 5,000 at 3 months. Usha accepts the bill and return to Minal. Minal discounted the bill @ 12 % p.a. with the bank. On Maturity Usha finds herself unable to make payment of the bill and requested Minal to renew the bill. Minal accepts the proposal on the condition that Usha should Pay Rs. 2,000 in cash and accept a new bill at one month along with interest at 10% p.a. These arrangements were carried through. Usha retires the bill by paying Rs. 3015/- Pass Journal Entries in the books of Minal.
Solution:
In the Books of Minal (Drawer)
Journal Entries
Date Particulars L.F. Debit (Rs.) Credit (Rs.) (1) Bills Receivable A/c ...Dr.
To Usha's A/c
(Being bill drawn on Usha for 3 months)5,000 5,000 (2) Bank A/c ...Dr.
Discount A/c ...Dr.
To Bills Receivable A/c
(Being bill discounted with the bank @ 12% p.a. for 3 months)4,850
150
5,000(3) Usha's A/c ...Dr.
To Bank A/c
(Being discounted bill dishonoured on maturity due to Usha's inability to pay)5,000 5,000 (4) Usha's A/c ...Dr.
To Interest A/c
(Being interest charged on the remaining balance of Rs. 3,000 @ 10% p.a. for 1 month)25 25 (5) Cash/Bank A/c ...Dr.
To Usha's A/c
(Being part payment received from Usha)2,000 2,000 (6) Bills Receivable A/c ...Dr.
To Usha's A/c
(Being new bill drawn for the balance amount along with interest)3,025 3,025 (7) Cash/Bank A/c ...Dr.
Rebate / Discount Allowed A/c ...Dr.
To Bills Receivable A/c
(Being new bill retired by Usha before maturity and rebate allowed)3,015
10
3,025Note:
- Discounting Charge calculation: Rs. 5,000 × 12/100 × 3/12 months = Rs. 150
- Interest calculation: Rs. 3,000 (Remaining Balance) × 10/100 × 1/12 months = Rs. 25
- New Bill Amount: Rs. 3,000 (Balance) + Rs. 25 (Interest) = Rs. 3,025
- Rebate calculation: Rs. 3,025 (Bill Amount) - Rs. 3,015 (Amount Paid) = Rs. 10