Journal Entries of Bill of Exchange Accounting

What is bill of exchange?

Bill of exchange is written order letter in which there is not any condition. Writer’s sign will be in it. In this letter, order to other person is given to pay the certain sum of money to the writer of letter or to pay any other authorized person or who has this bill of exchange.

Essential of a Bill of Exchange

1. It should be in written.
2. Unconditional order to pay.
3. Signed by writer.
4. Debtor must be a certain person.
5. Payment must be a certain amount.
6. Payment must be done on maturity of bill.
7. Acceptance must be given by debtor on this bill.

Parties of the Bill of Exchange

1. Drawer or Maker or Creditor
2. Drawee or Debtor or Acceptor
3. Payee or who have right to get payment

Maturity Date

Due date of bill is also called maturity date and we can get three day of grace period for paying debt through bill.

Endorsement

If drawer signs on the back side of bill for giving the right to other for getting money from debtor, it will be endorsement.

Dishonour of Bill of Exchange

If drawee or debtor does not pay the money of bill of exchange on maturity, then bill will be dishonour. After this, debtor will be responsible to his unpaid dues.

Journal Entries in the books of Drawer

1. Drawer receives a bill accepted by drawee

Bill receivable account Dr.

To Drawee account

2. Drawee pays the bill on due date

Cash account Dr.

To B/R account

or

2.  Drawee dishonours the bill on due date

Drawee account Dr.

To B/R account

3. If noting charges are paid by drawer

Drawer account Dr.

To Cash account

Journal Entries in the books of Draweeor Debtor

1. Drawer receives a bill accepted by drawee

Drawer account Dr.

To Bill payable account

2. Drawee pays the bill on due date

B/P Dr.

To cash  account

or

2.  Drawee dishonours the bill on due date

B/P account Dr.

To Drawer  account

3. If noting charges are paid by drawer

Noting Charges  account Dr.

To Drawer  account