Example
Bills of Exchange Journal Entries
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 | |||
Mr A 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.
When A sold goods on credit to B
A Books
B
To sales
(being goods sold to B)
B Books
Purchase A/c
To A
(being goods purchased from A)
When A drew a bill on B
A Book
B/R A/c
To B
B Books
A
To B/P
When A Discounted the bill
A Books
Bank A/c
Discount A/c
To B/R
B Book
No Entry
4 July 2014 when B honors the bills
A Books
No Entry
B Books
B/P A/c Dr
To Bank A/c