On 1 may 2015 Mr A sold of goods to Mr B for 50000 on Credit. Mr B ask for 3 month time .Mr A ask for security .Mr B say he ready to sign any document you like as security.Mr A on White paper an write following phrase.
“Pay to in the order of Mr. A rs 50000 3 month after the date.
He also write date and place of preparing th e bill signature on the paper.
Mr a send this paper and asked him sign on the revenue stamp. Mr b sign on the revenue stamp and writes the word accepted across the face of the bill.Paper now become valuable document called as bills of exchange.Mr A keeps the bills with him for next 3 month after that he goes to Mr B ask for payment.
Points to remember
Mr A is called as drawer of the bill.
Mr B is called as drawee of the bill.
Bill is an asset.
When A sold on credit to B Rs. 50000
BOOKS OF A
BOOKS OF B
B Dr.
Xxxx
Purchase A/c Dr.
Xxxx
To sales A/c
Xxxx
To A
Xxxxx
Being goods sold to B
Being goods purchased from A
When A draws a bills on B
BOOKS OF A
BOOKS OF B
Bills Receivable A/c
Xxxx
A
Xxxx
To B
Xxxx
To Bills Payable A/c
Xxxxx
Being bill to received
Being being bill to paid
After 3 month Mr. A goes to Mr B and take payment.
Mr. B honors the bills
BOOKS OF A
BOOKS OF B
Cash A/c
Xxxx
Bills payable a/c
Xxxx
To Bills Receivable A/c
Xxxx
To Cash A/c
Xxxxx
Being cash received
Being cash paid
Journal entry of endorsement of Bill
Ram sold goods on credit Rs 50000 to Rahim On 1 april2014.Out of these goods Rahim sold some of the goods to on credit to Rajiv. Rs 50000.Rahim Drew a Bill on Rajiv for 50000 on the same day.Rajiv accepted it and return it to Rahim. On 4 may 2014 when Ram demanded payment Rahim endorsed the in favor of Ram.
Endorsement
Rahim is called as the endorser
Ram is called as the endorsee.
On the due date Rajiv honored the bill.
Ram sold goods on Credit to Rahim,
RAM BOOKS
RAHIM BOOKS
RAJIV BOOKS
Rahim A/c
To sales
Xxx
xxx
Purchase A/c
To Ram
Xxxx
xxxx
NO Entry
Being goods sold to Rahim
Being goods purchased from Ram
When Rahim sold goods to Rajiv
RAM BOOKS
RAHIM BOOKS
RAJIV BOOKS
No Entry
Rajiv
To sales
Xxxx
xxxx
Purchase A/C
To Rahim
xxxx
being goods sold to Rajiv
Being goods purchased from Rahim
When Rahim drew a bill on Rajiv
RAM BOOKS
RAHIM BOOKS
RAJIV BOOKS
No Entry
B/R a/c
To Rajiv
Xxxx
xxxx
Rahim A/C
To B/P A/c
Xxx
xxxx
Being bill receivable from Rajeev
Being bill payable to Rahim
When Rahim endorsed the bill in Favor of Ram
RAM BOOKS
RAHIM BOOKS
RAJIV BOOKS
B/R
To Rahim
Xxxx
xxxx
Ram A/c
B/R
Xxxx
xxxx
No entry
Xxx
xxxx
being bill endorse to Ram
On 4 may 2014 Rajiv Honors the bill
RAM BOOKS
RAHIM BOOKS
RAJIV BOOKS
Cash A/c
To B/R
Xxxx
xxxx
No Entry
Bills Payable A/c
To cash A/c
Xxx
xxxx
Being cash received
Being cash paid
MrA sold goods on credit to B 1 April 2014 on the same day A drew a 3 month bill and A accepted it and return it.On 4 May 2014 A was in urgent requirement of money he approached bank and discounted the bill. Bank discounted the bill and charge a discounting @ 12% pa.