Bills Receivable and Bills Payable Accounts

25/12/2020 1 By indiafreenotes

Bills Receivable

Bills receivable is often used as an alternative term for accounts receivable but more specifically relates to amounts due to a business under bills of exchange.

When a business sells goods to a customer, they might also draw up a bill of exchange on the customer. By accepting the bill of exchange the customer effectively agrees to pay the amount due on a specified date. The purpose of the bill of exchange is to provide proof of debt in the form of a transferable document which the business can either hold, discount, or negotiate.

There are three stages in the bills receivable accounting process.

  • The business sells goods to a customer and records the amount owed as an account’s receivable asset in the normal manner.
  • The customer accepts the bill of exchange and the business transfers the asset to a bills receivable account.
  • The customer makes the payment to the business when the bill is presented on the maturity date.

Bills Payable

A bill payable is a document which shows the amount owed for goods or services received on credit (meaning not paid at the time that the goods or services were received). The provider of the goods or services is referred to as the supplier or vendor. Hence, a bill payable is also known as an unpaid vendor invoice. The term can be defined in three ways:

  • Bills payable can be the funds that a bank borrows from other banks. These are typically due in the very short term and are used to provide liquidity to the receiving bank.
  • Bills payable can be short-term notes issued by a business that are due on demand or by a specific date. The duration of these forms of indebtedness tend to be quite short.

Bills payable can be the same as accounts payable, which are usually comprised of invoices from suppliers that are received and recorded by a business within the current liabilities section of the balance sheet. These liabilities may be recorded as accrued liabilities, if a liability is present as of the end of a reporting period, but no invoice from a supplier has yet been received.

Where the number of bills received or bills issued is large, it would lead to saving of time if, instead of journalizing each receipt of bill or issue of bill, we were to maintain suitable registers (or books) and record the transactions there. Two books would be required one for bills received and another for bills issued. The rulings for the two books are given below.

The book will be totaled monthly. In case of the Bills Receivable Book, the total of the amount column will be posted to the debit of the Bills Receivable Account. The accounts of the parties from whom the bills are received will be credited with the amounts appearing against their names.

In case of the Bills Payable Book, the total of the amount column will be posted to the credit of the Bills Payable Account and the accounts of the parties who drew the bills (or at whose request the bills were accepted) will be debited. It must be remembered that in the case of other transactions relating to bills, journal entries will have to be passed with the only exception of discounting.

When a bill is discounted, the entry will be made on the debit side of the Cash Book—the amount received being entered in the bank column and the amount of the discount being entered in the discount column. In the case of endorsement in favour of a creditor or for dishonour, the entry concerned will be through the journal.


The debtors and creditors in the books of Roy and Co., on 30th June, 2011 were as under: