BILLS OF EXCHANGE HSC 12TH STANDARD
Introduction
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 order of a certain person or to the bearer of the instrument.
Parties to a Bill of Exchange
There are three parties to a bill of exchange:
- Drawer: The person who makes or draws the bill. He is the creditor.
- Drawee: The person on whom the bill is drawn. He is the debtor who has to pay the money.
- Payee: The person to whom the payment is to be made. The drawer himself can be the payee.
Reena's Address,
City, Pincode.
Date: 15th May, 2023
Three months after date, pay to me or my order, the sum of Rupees Thirty Five Thousand only, for the value received.
(Drawer)
Specimen of a Bill of Exchange
Question 1: Bill Honoured on Due Date
On 15th May, 2023, Reena sold goods to Aakash for ₹ 35,000. On the same day, Reena drew a bill of exchange on Aakash for the amount at 3 months. Aakash accepted the bill and returned it to Reena. Reena retained the bill till the due date. On the due date, Aakash honoured his acceptance.
You are required to pass Journal Entries in the books of Reena and Aakash.
Solution to Question 1
In the Books of Reena (Drawer)
Journal Entries
| Date | Particulars | L.F. | Debit Amount (₹) | Credit Amount (₹) |
|---|---|---|---|---|
| 2023 May 15 |
Aakash's A/c Dr. To Sales A/c (Being goods sold on credit to Aakash) |
35,000 | 35,000 | |
| May 15 |
Bills Receivable A/c Dr. To Aakash's A/c (Being bill drawn and acceptance received from Aakash) |
35,000 | 35,000 | |
| Aug 14 |
Cash/Bank A/c Dr. To Bills Receivable A/c (Being bill honoured on the due date) |
35,000 | 35,000 | |
| Total | 1,05,000 | 1,05,000 | ||
In the Books of Aakash (Drawee)
Journal Entries
| Date | Particulars | L.F. | Debit Amount (₹) | Credit Amount (₹) |
|---|---|---|---|---|
| 2023 May 15 |
Purchases A/c Dr. To Reena's A/c (Being goods purchased from Reena on credit) |
35,000 | 35,000 | |
| May 15 |
Reena's A/c Dr. To Bills Payable A/c (Being acceptance given to Reena) |
35,000 | 35,000 | |
| Aug 14 |
Bills Payable A/c Dr. To Cash/Bank A/c (Being bill honoured on the due date) |
35,000 | 35,000 | |
| Total | 1,05,000 | 1,05,000 | ||
Working Note: Due Date Calculation
The bill is drawn on 15th May, 2023 for 3 months.
- Period in Months: 15th May, 2023 + 3 months = 15th August, 2023.
- Add Grace Days: 15th August + 3 Grace Days = 18th August, 2023.
However, 15th August is a Public Holiday (Independence Day). According to the Negotiable Instruments Act, if the due date falls on a public holiday, the preceding business day is considered the due date.
Therefore, the Legal Due Date is 14th August, 2023.
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