Journal Entry of Bill of Exchange in Accounting

Journal Entry of Bill of Exchange in Accounting

Meaning of Bill of Exchange

 

According to the Negotiable Instruments Act 1881, a bill of exchange is defined as “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”.

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.

Bill of exchange

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 RajivBeing 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

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