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.
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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
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- Mr A is called as drawer of the bill.
- Mr B is called as drawee of the bill.
- Bill is an asset.
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When A sold on credit to B Rs. 50000
BOOKS OF A | BOOKS OF B | ||
B Â Â Â Â 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 | ||
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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 50000Â 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.
EndorsementÂ
- Rahim is called as the endorser
- Ram is called as the endorsee.
On the due date Rajiv honored the bill.
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Ram sold goods on Credit to Rahim,
RAM BOOKS Â | RAHIM BOOKS Â | RAJIV BOOKS Â | |||
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 Â | RAHIM BOOKS Â | RAJIV BOOKS Â | |||
No Entry |  | Rajiv    To sales | Xxxx     xxxx | Purchase A/C To Rahim | xxxx |
| Â | being goods sold to Rajiv | Being goods purchased from Rahim | |||
When Rahim drew a bill on Rajiv
RAM BOOKS Â | RAHIM BOOKS Â | RAJIV BOOKS Â | |||
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 Â | RAHIM BOOKS Â | RAJIV BOOKS Â | |||
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 Â | RAHIM BOOKS Â | RAJIV BOOKS Â | |||
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
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B Books
A
To B/P
When A Discounted the bill
A Books
Bank A/c
Discount A/c
To B/R
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B Book
No Entry
4 July 2014 when B honors the bills
A Books
No Entry
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B Books
B/P A/c Dr
To Bank A/c