Detailed, Step-by-Step NCERT Solutions for 11 Accountancy Chapter 8 Bills of Exchange Questions and Answers were solved by Expert Teachers as per NCERT (CBSE) Book guidelines covering each topic in chapter to ensure complete preparation.
Bills of Exchange NCERT Solutions for Class 11 Accountancy Chapter 8
Bills of Exchange Questions and Answers Class 11 Accountancy Chapter 8
Test Your Understanding – I
Write ‘True’ or ‘False’ against each statement regarding a bill of exchange :
1. A bill of exchange must be accepted by the payee.
2. A bill of exchange is drawn by the creditor.
3. A bill of exchange is drawn for all cash transaction.
4. A bill payable on demand is called Time bill.
5. A person to whom payment is to be made in a bill or exchange is . called payee.
6. A negotiable instrument does not require the signature of its maker.
7. The hundi payable at sight is called Darshani hiindi.
8. A negotiable instrument is not freely transferable.
9. Stamping of promissory note is not mandatory.
10. The time of payment of a-negotiable instrument need not be certain.
Test Your Understanding – II
Fill in the blanks with suitable word(s) :
1. The person to whom the amount mentioned in the promissory is payable is known as ……………
2. Transfer of a negotiable instrument to another person by signing on it, is known as ……………
3. In a promissory note, the person who makes the promise to pay is called as ……………
4. A person who endorses the promissory note in favour of another is known as ……………
Test Your Understanding – III
Fill in the blanks :
1. A bill of exchange is a …………… instrument.
2. A bill of exchange is drawn by the …………… upon his ……………
3. A promissory note is drawn by …………… in favour of his ……………
4. There are …………… parties to a bill of exchange.
5. There are …………… parties to a promissory note.
6. Drawer and cannot be the same parties in case of a bill of exchange,
7. Bill of exchange in Indian language is called ……………
8 ………….. days of grace are added in terms of the bill to calculate the date of its
2. drawer, drawee
3. debtor, creditor
8. Three, maturity
Short Answer Type Questions
Name any two types of commonly used negotiable instruments.
In modern times a very large number of business transactions are made on credit basis. In case of credit sale of goods, the purchaser usually promises to make payment after a certain period. In such a case, the seller would like to get a written undertaking from the buyer to get the payment after a fixed period.
As such, the seller prepares a document in which he puts in writing all the terms and conditions relating to sale of goods such as amount required to be paid; date of payment; place of payment; and the like. The Buyer puts his signatures on the document and it is known as ‘Bill of Exchange’.
As such, the bills of exchange are instruments of credit which facilitate the credit sale of goods. In India, these are known as ‘Hundis’ which are written in Indian languages and have been in use from the time immemorial. In western countries, the names used for such instruments are ‘Bills of Exchange’ and ‘Promissory Notes’.
The same names are now being increasingly used in India too. All such instruments are governed by Indian Negotiable Instruments Act. 1881. Two commonly used negotiable instruments are Bills of Exchange and Promissory Notes under Negotiable Instruments Act. 1881.
Write two points of distinction between Bills of Exchange and Promissory Notes.
Distinction between Bill of Exchange and Promissory Notes –
|Bill of Exchange
|The creditor is the drawer.
|The debtor is the drawer.
|Order and Promise
|It contains an order to pay.
|It contains a promise to pay.
|It has three parties, the drawee, the drawer and the payee.
|It has two parties, the promisor and the payee.
|The liability of the owner or drawer arises only if the acceptor not pay.
|The promisor has the primary liability to pay.
State any four essential features of bills of exchange.
Characteristics or Features of Bills of Exchange – The main characteristics of bill of exchange :
1. A bill of exchange must be in writing.
2. It must contain an order (and not a request) to make payment.
3. The order must be unconditional.
4. The amount of bill of exchange must be definite.
5. The date of payment must be a fixed one.
6. It must be signed by the maker (drawer) of the bill.
7. It must be signed by the acceptor (drawee).
8. The amount mentioned in the bill is payable either on demand or on the expiry of a fixed period.
9. The amount is payable either to the bearer of the bill or to a ‘ specified person or to his order.
10. It bears stamps according to its amount or is drafted on a stamped paper of the court.
State the three parties involved in a bill of exchange.
Parites to a Bill of Exchange – There are three parties to a bill of exchange :
1. Diavver: He is the seller or creditor entitled to receive money from someone. He writes or draws the bill and is known as drawer. The bill of exchange is signed by the drawer of the bill.
2. Drawee or Acceptor : He is the purchaser or the debtor on whom the bills drawn and who is liable to pay the amount mentioned in the bill. He accepts to pay the amount by writing the word “Accepted” on the bill and then signs it.
3. Payee : The person to whom the payment is to be made is called payee. The drawer himself or a third party may be the payee of the bill. The drawer will be the payee of the bill, if he retains the bill till the date of maturity and receives the payment. The Bank may also be the payee of the bill if the bills is discounted from the bank. In case the bill is endorsed by the drawer to a third part}, the third party known as endorsee will be the payee of the bill. As such, the drawer himself or the bank or the endorsee may be the payee of the bill.
What is meant by maturity of bill of exchange.
Date of Maturity and Days of Grace – The date on which the payment of the bill become due is called the ‘due date’ or ‘date of maturity’. In other words, the date on which the duration of the bill comes to an. end is called the due date. While calculating the due date of the bill, it is compulsory to add three days to the period of the bill. These three days are called ‘Days of Grace’. For example, if a bill is drawn on 1st July, 1994 and is payable 2 months after date, its maturity date will be 4th September. 1994.
The following points are very significant for calculating the date of maturity :
(1) If a bill falls due in those months in which there is no corresponding day, i.e., 29th, 30th or 31 st dates, its maturity day will be the last date of such month. For example, if a bill was drawn on 30th January, 1994 for one month, it will . become due on 28th February+ 3 days of grace = 3rd March, 1994, because there is no 30th date in February.
(2) Bills drawn on 30th May for one month will both become due on 3rd July.
What is meant by dishonour of a bill of exchange.
Dishonour of a bill is a situation when the acceptor refuses to pay the amount of the bill or due to insolvency of the acceptor. If the bill is dishonoured, the party which gave the bill will be debited with the amount of bill and noting charges and the account of bank or the order see will be credited.
(i) In the case of bill is retained by the drawer till maturity and dishonoured on due date, the entry in the books of drawer may
be posted as under – Drawer or Acceptor A/c — Dr.
To Bills Receivable A/c (Amount of Bill)
To Cash A/c (Amount of Noting charges)
(ii) When the bill is discounted with the bank and is dishonoured, the entry will be –
Drawer or Acceptor A/c — Dr.
To Bank A/c (Amount of bill & noting charges)
(iii) When the bill is endorsed and dishonoured, the entry will be
Drawer or Acceptor A/c — Dr.
To Endorsee’s A/c’ (Amount of bill & noting charges)
(iv) When the bill has been sent for collection to bank and is dishonoured
Drawer or Acceptor A/c — Dr.
To Bill for Collection A/c (Amount of bill)
To Bank A/c (Amount of noting charges)
In the books of Drawer or Acceptor if bill is dishonoured, the liability of creditor will be restored.
The following entry is passed –
Bills Payable A/c — Dr. (Amount of bill)
Noting charges A/c — Dr. (Amount of noting charges)
To Creditors A/c (Amount of bill & Noting charges)
Name the parties to a promissory note.
Parties to a Promissory Note – There are two parties to a promissory note :
1. Maker: He is the person who writes a promissory note and signs it.
2. Payee : He is the person who is entitled to get the payment.
There is no acceptor in case of a promissory note because the maker himself is liable to pay the amount.
What is meant by acceptance of a Bill of Exchange?
Acceptance of a bill of exchange means to give the bill debits the account of receiver and treats the bill as a new type of liability called bills payable to the acceptor. The same shall be bills receivable for the drawer and bill payable for the acceptor or drawer.
When an acceptance of a bill is sent to a creditor, it is considered that his debt has been settled by creating a new liability known as Bills Payable.
Following journal entries are made in the books of acceptor or drawer are made as under –
(i) At the time of Purchase of goods on credit
Purchases A/c — Dr.
To Supplier or Creditor A/c
(ii) At the time of acceptance of bill
Supplier (Creators) A/c — Dr.
To Bills Payable A/c
What is noting charge of a Bill of Exchange?
Noting charge meaning – A bill of exchange should be duly presented for payment on the date of its maturity. In case the bill was dishonoured on due date or maturity date, it has got preferably to be noted by Notary Public. For providing this service, a fees is charged which is known as Noting charges.
Notary Public noted the following facts-
- Date, amount and reasons of dishonour,
- If bill is not expressly dishonoured, but refused to pay, the -x reasons for to treat it as dishonoured,
- The amount of noting charges.
What is meant by Renewal of a bill of exchange?
Sometimes an acceptor expresses his inability to meet the bill on the due date and requests the holder, or really the drawer, to substitute the old bill with a new one. The purpose is to get an extension of time. If the drawer agrees, the old bill will be cancelled and a new , bill will be drawn and of course.accepted by the drawer. This process is called ‘renewal of bill’.
In such cases there is no need for getting the bill noted since the drawer himself makes a request for cancellation of bill. Normally, for doing this, the-drawer will charge interest for the extension of the time. The amount of interest may be paid in cash or included in the amount of the new bill. The interest will depend on the account of the bill, the rate of interest and the period of the new bill.
Of course, the new bill may not be for the full amount since it is possible that the drawer may receive part of the payment in cash immediately. In that case, interest will be due only on the amount of the new bilk
Give the proforma of Bills Receivable Book.
Bills Receivable Book
Give the proforma of a BiIs Payab e Book.
The below mentioned is the proforma Bills Payable Book.
What is Retirement of a bill of exchange?
If the drawer or the acceptor wishes of pay the amount of the bill before the date of maturity, it is called retiring the bill. Usually Lue holder, in such a case, would be willing to allow deduction because the interest involved. Such a deduction is called a rebate. For tite accptor the rebate will be a gain and for the holder a loss. The entres to be made are accordingly:
In the books of acceptor:
Bills Paahlc A/c — Dr. [The amount of the bill]
To Cash (or rebate) A/c — [The actual amount paid]
To Rebate A/c — [The amount of rebate earned]
In the books of the holder:
Cash A/c — Dr.
Rebate A/c — Dr.
To Bills Receivable A/c
Give the meaning of Rebate.
When the drawer makes the payment of the bill before its duc date, it is called retiring the bill. In such case, the holder of the bill usually allows him discount, technically called ‘Rebate’. Such rebate is calculated at a specific rate per annum for the period the payment is being made too early. The rebate is a gain to the party making the payment andan expense to the party receiving the payment.
Give the proforma of Bills of Exchange.
Specimen Of A Bill Of Exchange
Long Answer Type Questions
“A bill of exchange must contain an unconditional promise to pay.” Do you agree with this statement?
“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.” (Section 5 of the Negotiable Instruments Act, 1881).
This means that if a person orders another person to pay certain sum of money to somebody, it will be a bill of exchange the order to pay should be accepted by the person so ordered, to be of real use.
Features of Bills of Exchange –
- A bill of exchange must be in writing.
- It must be dated.
- It must contain an order to a person called ‘drawer’, to pay a certain sum of money (not a vague sum of money).
- The order must be unconditional.
- It is signed by the maker (or drawer) of the bill. .
- The money must be payable to a definite person or to his order or to the bearer.
- It must be for a specified account and specific period.
- To complete a bill, acceptance by the drawer is necessary.
When drawee gives his acceptance by puttinghis signature, he becomes the acceptor of the bill.
Briefly explain the effects of dishonour and noting of a bill of exchange.
Dishonour means a situation when the acceptor of the bill refuses pay the amount or is otherwise unable to do so, say, because of insolvency. In such a case, the holder of the bill can recover the amount from any of the previous endorsers or the drawers. To establish the fact of a proper presentation and dishonour, the bill is generally got noted. The endorsement is made either on the bill or on a separate paper attached to the-bill called ‘allouge’. It is given to a person called notary public, appointed by government. The notary public will present the bill for payment; if payment is received it will be given to the holder; otherwise the fact of dishonour will be noted on the face to the bill. This act is called noting. There is a small charge for service of the notary public payable by the holder; it is called “Noting charges” and may be recovered from the party responsible for the dishonour. Noting will consist of the following –
- That the bill has been dishonoured, in fact;
- The date of the dishonour;
- The reason given, if any, for the dishonour; and
- The charges made by the notary public.
Entries on the Dishonour of a Bill – If the bill dishonoured, the party which gave the bill will be debited with the amount of the bill and noting charges, since it is now responsible. The back or the endorsee will claim payment and therefore their account will be credited.
Drawee’s Books – The entry for the dishonour of the bill in the books of drawee would depend upon the circumstances of each case :
(1) When the bill is retained by the drawer till maturity and dishonoured on due date –
Drawee’s A/c — Dr.
To Bill receivable A/c — [The amount of Bill]
To Cash A/c — [Noting charges]
(2) When the bill is discounted with the bank is dishonoured, the entry will be –
Drawee’s A/c — Dr. [The amount of the Bill
To Bank A/c and noting charges]
(3) When the bill is endorsed to the endorsee and is dishonoured, the entry will be –
Drawee’s A/c — Dr. [The amount of the bill
To Endorsee’s A/c and noting charges]
(4) When the bill is being sent to the bank for collection as is dishonoured –
Drawee of A/c — Dr.
To Bill sent for collection A/c [The amount of Bill]
To Bank A/c [Amount of noting charges]
Note – In all circumstance drawer’s (Acceptor’s) account will be debited to cancel the credit given to him at the time of acceptance of the bill.
Drawee’s Books – If the bill is dishonoured, the liability to the creditor concerned will be restored. In addition to the amount of the bill, noting charges, if paid for getting the bill noted, will also being payable to the creditors. Therefore, his account should be credited with the amount of bill plus the noting charges, if any. The amount of the bill will be debited to noting charges A/c. The entries will be
Bills Payable A/c — Dr. [The amount, of Bill]
Noting charges A/c — Dr. [Noting charges, if any]
To Creditor’s A/c [Amount of the bill + Noting charges]
(To whom the bill was sent originally)
It is important to note that if the drawee is declared insolvent on “ or before the due date, the bill is discussed to have been dishonoured and all entries for dishonour will have to be passed in the book of the concerned parties as given above.
Explain briefly the procedure of calculating the date of maturity of a bill of exchange. Give examples.
The date on which the payment of the bill is due is called the date of maturity or due date. It is calculated by adding 3 days of grace to the date otherwise determined. It is a practice of adding 3 extra days to the period of the bill. These extra days are called days of grace.
Suppose a bill is drawn on the 8th March and is payable 3 months after date. The 3 months will end on 8th June; adding 3 days to the due date Le., 11th June. If the due date falls on a public holiday, the bill will be payable on the proceeding working day; a bill due on 2nd October will be payable on the 1 st October when the due date (last day of grace) is a bank holiday or Sunday and second day of grace is also holiday, the bill is payable on the next day (succeeding) business day. It may be noted that days of grace are not added in case of instruments payable on demand.
While calculating the maturity date of a bill, the following points must be kept in mind :
- Days of grace is not allowed w hen bill is payable ‘on demand’ or‘at sight’.
- When the period of bill is stated in days the calculation of the maturity date will be in days (which includes the date of payment but exclude the date of transaction)
- Example – A bill dated January 1, 2005 is payable 60 days after date. The maturity date of the bill will be March 5, 2005. (30 days of January + 28 days of February + 2 days of March + 3 days of Grace).
- When the period ofthe bill is stated in months, the calculation of maturity date will be in terms of calendar months, ignoring the no. of days in a month.
- Example – A bill dated January 1, 2005 is payable three months after date the maturity date of the bill will be April 4, 2005.
- If the maturity date falls on a day which is a‘Public holiday’ the maturity date shall be of the bill shall be proceeding business day.
Distinguish between the Bill of Exchange and a Promissory Note.
Briefly explain the purpose and benefits of retiring a bill of exchange to the debtor and creditor.
There are instances when a bill of exchange is arranged to be retired before the due date by mutual understanding between the drawer and the drawee. This happens when the acceptors of the bill has funds at his disposal and makes a request to the drawer holder to accept the payment of the bill before its maturity. If the holder agrees to do so, the bill is said to have been retired.
The Retiring of a bill draws a certain on the bill transactions before the expiry of it’s normal terms. To encourage the retirement of the bill, the holder allows some discounts or rebate on bills for the period between date of retirement and maturity. The rebate is calculated at a certain rate of interest.
The accounting treatment of the retired bill under rebate is similar to accounting treatment when a bill is honoured by the acceptor on the due date in the ordinary course. The only difference between the two releases to the granting of rebate the following journal entries are recorded –
In the books of holder
Our retring the acceptance and rebate allowed
CashA/c — Dr.
Rebate on Bills A/c — Dr.
To Bills Receivables A/c
In the books of acceptor
Bills Payable A/c — Dr.
To Cash A/c
To Rebate on Bills A/c
Explain briefly the purpose and advantages of maintaining of a Bills Receivable Books.
When large no. of bills are drawn and accepted, their recording by means of journal entry for every transaction relating to the bills became a very cumbersome and time consuming exercise. It is then advisable to record them separately in special subsidiary books. The bills receivables in the Bills Receivable Books and the bills payables in the Bills Payable Book. The reason for the use of subsidiary books for cash, purchases, sales.
An important point in connection with bill receivable and bills payable books is to record the transactions relating to drawing and acceptance of bills, all other transactions that they only do not record the entire range of transactions relating to the bills. ’
Example – Relating to bills discounting, endorsement, retirement, renewel etc. simply have a passing reference in these books and the entries relating thereto are recorded as usual in the journal. It may be noted that the entry relating to honouring of bills appear in cash book.
Bills Receivable Book – It has been designed as a summary of information regarding a duly accepted bill received by a drawer. All the details of the bill date, acceptor’s name, amount, term, place of payment etc. Ever entered in the bills receivable book for presentation and further reference.
The bill receivable book, like any other subsidiary book is totaled periodically. This total is debited to the “Bills Receivable Account” whereas the account of every individual debtor from whom the bills received is credited in the ledger. The bills receivable account is the account of an asset and would always have a debit balance, this balance on any date would represent the amount of bills receivable unassured and in heard.
Briefly explain the benefits of maintaining a Bills Payable Book and state how is its position done in the ledger.
It is maintained like a Bills Receivable Book. It’s meant to record all the details relating to the bill accepted by a person or a party, which are retained for being use in the future, in case of need. The postings from this books are made to the debit of the account of every creditor to whom acceptance has been given and the periodical total of the books are credited to the bills payable account in the ledger.
The Bills Payable A/c representing as does the liability of the acceptor in respect of bills accepted by him, always has a credit balance, if any. The credit balance of this account on any particular date must be the same as the total amount worth of bills payable yet to be presented for payment as ascertained from the Bills Payable Book.
Bill met on Maturity
On Jan., 01, 2006 Rao sold goods Rs. 10,000 to Reddy. Half of the payment was made immediately and for the remaining half Rao drew a bill of exchange upon Reddy payable after 30 days. Reddy accepted the bill and returned it to Rao. On the due date Rao presented the bill of Reddy and received the payment. Journalise the above transactions in the books of Rao and prepare Rao’s account in the books of Reddy.
On Jan. 01,2006, Shankar purchased goods from Parvati for Rs. 8,000 and immediately drew a promissory note in favour of Parvati payable after 3 months. On the date of maturity of the promissory note, the Government of India declared holiday under the Negotiable Instrument Act 1881. Since, Parvati was unaware about the provision of the law regarding the date of maturity of the bill, she handed over the bill to her lawyer, who duly presented the bill and received the payment. The amount of the bill was handed over by the lawyer to Parvati immediately. Record the neccessary journal entries in the books of Parvati and Shankar.
Vishal sold goods for Rs. 7,000 to Manju on Jan. 05,2006 and drew upon her a bill of exchange payable after 2 months. Manju accepted Vishal’s draft and handed over the same to Vishal after acceptance. Vishal immediately discounted the bill with his bank @ 12% p.a. On the due date Manju met her acceptance. Journalise the above transaction in the books of Vishal and Manju. Ans. Journal Entries in the books of Vishal
On Feb. 01, 2006 John purchased goods for Rs. 15,000 from Jimmi. He immediately made a payment of Rs. 5,000 by cheque and for the balance accepted the bill of exchange drawn upon him by Jimmi. The bill of exchange was payable after 40 days. Five days before the maturity of the bill, Jimmi sent the same to his bank of collection. The bank duly presented the bill of John on the due date who met the bill. The bank imformed the same to Jimmi. Prepare John’s account in the books of Jimmi and Jimmi account in the books of John.
On Jan. 15, 2006 Kartar sold goods for Rs. 30,000 to Bhagwan and drew upon him three bills of exchanges of Rs. 10,000 each payable after one month, two months, and three months, respectively. The first bill was retained by Kartar till its maturity. The second bill was endorsed by him in favour of his creditor Ratna and the third bill was discounted by him immediately @ 6% p.a. All the bills were met by Bhagwan. Journalise the above transactions in the books of Kartar and Bhagwan. Also prepare ledger accounts in books of Kartar and Bhagwan.
On Jan. 01,2006, Arun sold goods for Rs. 30,000 to Sunil. 50% of the payment-was made immediately by Sunil on which Arun allowed a cash discount of 2%. For the balance Sunil drew a promissory note in favour of Arun payable after 20 days. Since, the date of maturity of bill was a public holiday, Arun presented the bill on a day, as per the provisions of Negotiable Instrument Act which was met by Sunil. State the date on which the bill was presented by Arun for payment and Journalise the above transactions in the books of Arun and Sunil.
Darshan sold goods for Rs. 40,000 to Varun on 8.1.2006 and drew upon him a bill of exchange payable after two months. Varun accepted the bill and returned the same to Darshan. On the due date the bill was met by Varun. Record the necessary journal entries in the books of Darshan and Varun in the following circumstances :
• When the bill was retained by Darshan till the date of its maturity.
• When Darshan immediately discounted the bill @ 6% p.a. with his bank.
• When the bill was endorsed immediately by Darshan in favour of his creditor Suresh.
• When three days before its maturity, the bill was sent by Darshan to his bank for collection.
Journal Entries in the books of Darshan
Endorsement/Dishonour/Returning of Bill
Bansal Traders allow a trade discount of 10% on the list price of the goods purchased from them. Mohan Traders, who runs a retail shop made the following purchases from Bansal Traders :
For all the purchases Mohan Traders drew promissory notes in favour of Bansal Traders payable after 30 days. The promissory note for the sale of Dec. 21, 2005 was retained by Bansal Traders with-them till the date of its maturity. The promissory note drawn on 26.12.2005 was discounted by Bansal Traders from their bank at 12% p.a. The promissory note drawn on Dec. 28,2005 was endorsed by Bansal Traders in favour of their creditor Dream Soaps in full settlement of a purchase amounting to Rs. 1,900. On 25.1.2006 Bansal Traders sent the promissory note drawn on Dec. 31, 2005 to their bank for collection. All the promissory notes were met by Mohan Traders. Record the necessary journal entries for the above transactions in the books of Bansal Traders and Mohan Traders and prepare Mohan Traders account in the books of Bansal Traders and Bansal Traders account in the books of Mohan Traders.
Narayanan purchased goods for Rs. 25,000 from Ravinderan on Feb. 01, 2006. Ravinderan drew upon Narayanan a bill of exchange for the same amount payable after 30 days. On the due date Narayanan dishonoured his acceptance. Pass the neccessary journal entries in the books of Ravinderan and Narayanan in following cases –
• When the bill was retained by Ravinderan with him till the date of its maturity.
• When the bill was discounted by Ravinderan immediately with his bank (a) 6% p.a.
• When the bill was endorsed to his creditor Ganeshan.
• When the bill was sent by Ravinderan to his bank for collection a few days before its maturity.
Ravi sold goods for Rs. 40,000 to Sudershan on Feb. 13, 2006. He drew four bills of exchange upon Sudershan. The first bill was for Rs. 5,000 payable after one month. The second bill was for Rs. 10,000 payable after 40 days; the third bill was for Rs. 12,000 payable after three months and the fourth bills was for the balance amount payable after 19 days. Sudershan accepted all the bills and returned the same to Ravi.
Ravi discounted the first bill with his bank at 6% p.a. He endorsed the second bill to his creditor Mustaq for the full settlement of a debt of Rs. 10,200. The third bill was kept by Ravi with him till the date of maturity. Five days before the maturity of the fourth bill, Ravi sent the bill to his bank for collection. All the four bills were dishonoured by Sudershan on maturity. Sudershan settled Ravi’s claim in cash three days after the dishonour of each bill along with interest @ 12% p.a. for the terms of the bills. You are requested to record the necessary journal entries in the books of Ravi, Sudershan, Mustaq and bank for the above transaction. Also prepare Sudershan’s account and Mustaq’s account in the books of Ravi.
On Jan. 01, 2006 Neha sold goods for Rs. 20,000 to Muskan and drew upon her a bill of exchange payable after two months. One month before the maturity of the hill Muskan approached Neha to accept the payment against the bill at a rebate @ 12% p.a. Neha agreed to the request of Muskan and Muskan retired the bill under the agreed rate of rebate. Journalise the above transaction in the books of Neha and Muskan.
On Jan. 15, 2006 Raghu sold goods worth Rs. 35,000 to Devendra and drew upto the latter three bills of exchanges. The first bill was for Rs. 5,000 payable after one month, the second bill was for Rs. 20,000 payable after three months and third bill for balance amount for 4 months. Raghu endorsed the first bill in favour of his creditor Dewan in full settlement of a debt of Rs. 5,200. The second bill was discounted by Raghu @ 6% p.a. and the third bill was retained by Raghu till the date of maturity.
Devendra dishonoured the bill on maturity and the bank paid Rs. 30 as noting charges. Four days before the maturity of the third bill Raghu, sent the same for collection to his bank. The third bill was also dishonoured by Devendra and the bank paid Rs. 200 as noting charges. Five days after the dishonour of the bill Devendra paid the entire amount due to Raghu along with interest Rs. 1,000 for this purpose. Devendra obtained a shortterm loan from his bank.
You are requested to record the necessary journal entires in the books of Raghu, Devendra and Dewan and prepare Devendra’s account in Raghu’s books and Raghu’s account in Devendra’s books.
Note : In this question, there is no information regarding honour of the first bill of Rs. 5,000. Therefore, it has been assumed that the first bill has met on maturity.
Vimal purchased goods Rs. 25,000 from Kamal on Jan. 15, 2006 and accepted a bill of exchange drawn upon him by Kamal payable after two months. On the date of the maturity the bill was duly presented for payment. Vimal dishonoured the bill.
Record the necessary journal entries in the books of Kamal and Vimal when
- The bill was retained by Kamal till the date of its maturity.
- The bill was immediately discounted by Kamal with his bank @ 6% p.a.
- The bill was endorsed by Kamal in favour of his creditor Sharad.
- Five days before its maturity the bill was sent by Kamal to his bank for collection.
Journal Entries in the books of Kamal
Abdulla sold goods to Tahir on Jan. 17, 2006 for Rs. 18,000. He drew a bill of exchange for the same amount for 45 days. Tahir accepted the bill and returned it to Abdulla. On the due date Abdulla presented the bill to Tahir which was dishonoured. Abdulla paid Rs. 40 as noting charges. Five days after the dishonour of his acceptance, Tahir settled his debt by making a payment of Rs. 18,700 including interest and noting charges. Record the necessary journal entries in the books of Abdulla and Tahir. Also prepare Tahir’s account in the books of Abdulla and Abdulla’s account in the books of Tahir.
Asha sold goods worth Rs. 19,000 to Nisha on Mar. 02, 2006. Rs. 4,000 were paid by Nisha immediately and for the balance, she accepted a bill of exchange drawn upon her by Asha payable after three months. Asha discounted the bill immediately with her bank. On the due date Nisha dishonoured the bill and the bank paid Rs. 30 as noting charges. Record the necessary’ entries in the books of Asha and Nisha.
On Feb. 02,2006, Verma purchased from Sharma goods forRs. 17,500. Verma paid Rs. 2,500 immediately and for the balance gave a promissory note to Sharma payable after 60 days. Sharma immediately endorsed the promissory note in favour of his creditor.
Gupta for the full settlement of a debt of Rs. 15,400. On the due date of the bill Gupta presented the bill to Verma which the latter dishonoured and Gupta paid Rs. 50 noting charges. On the same date Gupta informed Sharma about the dishonour of the bill. Sharma settled his debt to Gupta by cheque for Rs. 500 which includes noting charges and interest. Varma settled Sharma’s claim by cheque for the same amount.
Record the necessary journal entries in the books of Sharma, Gupta and Verma for the above transaction and prepare Verma’s and Gupta’s account in the books of Sharma. Sharma’s account in the books of Verma. And also Sharma’s account in the books of Gupta.
Lilly sold goods to Mathew on 1.3.2006 for Rs. 12,000 and drew upon Mathew a bill of exchange for the same amount payable after two months. Lilly immediately discounted the bill with her bank at 9% p.a. The maturity date of the bill was a non business day (holiday), therefore, Lilly had to present the bill as per the provisions of the Negotiable Instruments Act. 1881. The bill was dishonoured by Mathew and Lilly paid Rs. 45 as noting charges. Mathew settled the claim of Lilly five days after the dishonour of the bill by a cheque, which includes interest @ 12% for the term of the bill. Journalise the above transactions in the books of Lilly and Mathew and prepare Mathew’s account in the books of Lilly and Lilly’s account in the books of Mathew.
Kapil purchased goods for Rs. 21,000 from Gaurav on 1.2.2006 and accepted a bill of exchange drawn by Gaurav for the t same amount. The bill was payable after one month. On 25.2.2002 Gaurav sent the bill to his bank for collection. The bill was duly presented by the bank. Kapil dishonoured the bill and the bank paid Rs. 100 as noting charges.
• Record the necessary journal entries for the above transactions in the books of Kapil and Gaurav.
On Feb. 14, 2006 Rashmi sold goods Rs. 7,500 to Alka. Alka paid Rs. 500 in cash and for the bank balance accepted a bill of exchange drawn upon her by Rashmi payable after two months. On Apr. 10,2006, Alka approached Rashmi to cancel the bill since she was short of funds. She further requested Rashmi to accept Rs. 2,000 in cash and draw a new bill for the balance including interest Rs. 500. Rashmi accepted Alka’s request and drew a new bill for the amount due payable after 2 months. The bill was accepted by Alka. The new bill was duly met by Alka on maturity. Record the necessary journal entries in the books of Rashmi and Alka and prepared Alka’s account in the books of Rashmi’s and Rashmi’s account in the books of Alka’s.
Nikhil sold goods for Rs. 23,000 to Akhil on Dec. 01, 2005. He drew upon Akhil a bill of exchange for the same amount payable after 2 months. Akhil accepted the bill and sent it back to Nikhil. Nikhil discounted the bill immediately with his bank @ 12 p.a. On the due date Akhil dishonoured the bill of exchange and the bank paid Rs. 100 as noting charges. Akhil requested Nikhil to draw a new bill upon him with interest @ 10% p.a. which he agreed. The new’ bill was payable after two months. A week before the maturity of the second bill Akhil requested Nikhil to cancel the second bill. He further requested to accept Rs. 10,000 in cash immediately and drew a third bill upon him including interest of Rs. 500. Nikhil agreed to Akhil’s request. The third bill was payable after one month. Akhil met the third bill on its maturity. Record the necessary journal entries in the books of Nikhil and Akhil and also prepare Akhil’s account in the books of Nikhil and Nikhil’s account in the books of Akhil.
On Jan. 01,2006 Vibha sold goods worth Rs. 18,000 to Sudha and drew upon the latter a bill of exchange for the same amount payable after two months. Sudha accepted Vibha’s draft and returned the same to Vibha after acceptance. Vibha endorsed the bill immediately in favour of her creditor Geeta. Five days before the maturity of the bill Sudha requested Vibha to cancel the bill since she was short of funds. She further requested to draw
a new bill upon her including interest of Rs. 200. Vibha accepted Sudha’s request. Vibha took the bill from Geeta by making the payment to her in cash and cancelled the same. Then she drew a new bill upon Sudha as agreed. The new bill was payable after one month. The new bill was duly met by Sudha on maturity. Record the necessary journal entries in the books of Vibha.
Following was the position of debtor and creditor of Gautam as on 1.1.2006 :
The following transactions took place in the month of Jan. 2006 :
Jan. 2 Drew on Babu at two months after date at full settlement for Rs. 4,800. Babu accepted the bill returned it on 5.1.2006.
Jan. 4 Babu’s bill discounted for Rs. 4,750.
Jan. 8 Chanderkaia sent promissory note for Rs. 8,000 payable three months after date.
Jan. 10 Promissory note received from Chanderkaia ‘ discounted for Rs. 7,900.
Jan. 12 Accepted Sheiba draft for the amount due payable two months after date.
Jari. 22 Anita sent his promissory note payable after two months.
Jan. 23 Anita’s promissory note endorsed in favour of Manju.
Jan. 25 Accepted Anju’s draft payable after three months.
Jan. 29 Kiran sent Rs. 2,000 in cash and a promissory note for the balance payable after three months.
(Record the above transactions in the proper subsidiary books.)
On Jan. 01, 2006 Harsh accepted a month bill for Rs. 10,000 drawn on him by Tanu for letter’s benefit. Tanu discounted the bill on same day @ 8% p.a. On the due date Tanu sent a cheque to Harsh for honour the bill. Harsh duly honoured his acceptance. Record the journal entries in the Books of Tanu and Harsh.
Ritesh and Naina were in need of funds temporarily. On August 01,2005 Ritesh drew upon Naina a bill for Rs. 12,000 for 4 months. Naina accepted the bill and returned to Ritesh. Ritesh discounted the Bill @ 8% p.a. Half amount of the discounted hill remitted to Naina. On due date, Ritesh sent the required sum of Naina, who met the bill. Journalise the transaction in the books of both the parties.
Journal Entries in the books of Ritesh
On Jan. 01,2006, Bhanu and Naman drew on each other a bill for Rs. 8,000 payable 3 months after the due date for their mutual benefit. On January 02, they discounted with their bank each other’s bill at 5% p.a. on the due date each met his own’s acceptance. Give journal entry in the books of Bhanu and Naman.
On Nov. 01, 2005 Sonia drawn a bill on Sunny for Rs. 15,000 for 3 months for mutual accommodation. Sunny accepts the bill and return it to Sonia. Sonia discounted the same with his bankers @ 6% p.a. The proceeds are shared between Sonia and Sunny in the proportion of 2/3rd, 1/3rd respectively. On the due date Sonia remits his proportion to Sunny who fails to meet the bill and as a result Sonia has to meet it. Sunny give a fresh acceptance for the amount due to Sonia plus interest of Rs. 100. Sunny meet his second acceptance on due date. Record the necessary journal entries in the books of Sonia and Sunny.