by The drawer is the person who draws or makes the bill and sends it to the drawee or the payer for the acceptance. Once accepted, the bill becomes Bills Receivable for the drawer and Bills Payable for the drawee or payee.
The drawer may endorse the bill to another person who becomes the holder of the bill. On the due date, the holder presents the bill to the drawee for payment.
The payee is the person who eventually pays for the bill. Drawee will be the payee as well most of the time but sometimes a third party will pay the bill on behalf of the drawee then the third party will become the payee.
Journal Entries in the books of Drawer
| 1. When the goods are Sold.
Debtor’s A/c……… Dr. To Sales A/c [the person who purchases the goods he is known as debtor] |
| 2. When the bill is drawn.
Bills Receivable A/c ……… Dr. To Drawee’s A/c |
| 3. Different ways of keeping Bill.
a. Kept with Drawer himself. No entry b. Discounted with the bank. Cash / Bank A/c ……… Dr. Discount A/c ………Dr. To Bills Receivable A/c c. Endorsed Endorsee’s A/c ………Dr. To Bills Receivable A/c d. Sent to bank for collection. Bank for collection A/c ………Dr. To Bills Receivable A/c |
| 4. When the Bill is Dishonoured.
a. Kept with Drawer himself. Drawee’s a/c ……… Dr. To Bills Receivable A/c b. Discounted with the bank. Drawee’s a/c ……… Dr. To Cash / Bank A/c c. Endorsed Drawee’s a/c ……… Dr. To Endorsee’s A/c d. Sent to bank for collection. Drawee’s a/c ……… Dr. To Bank for collection A/c |
| 5. When the Bill is Honoured.
a. Kept with Drawer himself. Cash / Bank A/c ……… Dr. To Bills receivable A/c b. Discounted with the bank. No entry
c. Endorsed No entry
d. Sent to bank for collection. Cash /Bank A/c ……… Dr. To Bank for collection A/c |
| 6. When the part payment is made
Cash / bank A/c ……… Dr. To Drawee’s A/c |
| 7. When the interest is charged.
Drawee’s A/c ……… Dr. To Interest A/c |
| 8. When the Bill is retired.
Cash / Bank A/c ……… Dr. Rebate’s A/c ……… Dr To Bill’s Receivable A/c |
| 9. When the drawee become insolvent.
Cash / bank A/c ……… Dr. Bad debts A/c ……… Dr. To Drawee’s A/c |
| 10. When the noting charge is charged.
The amount of noting charges will be added to the dishonoured bill and no separate entry would be passed. |
Journal Entry for Bills of Exchange
Drawer’s Books
| Date | Particulars | Amount (Dr) | Amount (Cr) | |
| 1. The issue of bill | Bills Receivable A/c | Dr. | xx | |
| To Drawee’s A/c | xx | |||
| (Being bill was drawn and accepted) | ||||
| 2. The Bill is retained until maturity | No entry | |||
| a. In case of honor | Cash/Bank A/c | Dr. | xx | |
| To Bills Receivable A/c | xx | |||
| (Being bill retained till maturity and payment received) | ||||
| b. In case of dishonor | Drawee’s A/c | Dr. | xx | |
| To Bills Receivable A/c | xx | |||
| (Being bill retained till maturity and dishonored) | ||||
| 3. The bill is discounted with the bank | Bank A/c (amount actually received) | Dr. | xx | |
| Discount A/c (amount of discount) | Dr. | xx | ||
| To Bills Receivable A/c | xx | |||
| (Being bill discounted with the bank) | ||||
| a. In the case of honor | No entry | |||
| b. In case of dishonor | Drawee’s A/c | Dr. | xx | |
| To Bank A/c | xx | |||
| (Being discounted bill dishonored) | ||||
| 4. The bill is endorsed | Creditor’s/ Endorsee’s A/c | Dr. | xx | |
| To Bills Receivable A/c | xx | |||
| (Being bill endorsed in favor of creditor) | ||||
| a. In case of honor | No entry | |||
| b. In case of dishonor | Drawee’s A/c | Dr. | xx | |
| To Creditor’s/ Endorsee’s A/c | xx | |||
| (Being bill endorsed dishonored) |
Drawee’s or the Payer’s Books
| Date | Particulars | Amount (Dr) | Amount (Cr) | |
| 1. The issue of bill | Drawer’s A/c | Dr. | xx | |
| To Bills Payable A/c | xx | |||
| (Being bill was drawn and accepted) | ||||
| 2. The Bill is retained until maturity | No entry | |||
| a. In case of honor | Bills Payable A/c | Dr. | xx | |
| To Cash/ Bank A/c | xx | |||
| (Being payment made against the bill) | ||||
| b. In case of dishonor | Bills Payable A/c | Dr. | xx | |
| To Drawer’s A/c | xx | |||
| (Being bill dishonored) | ||||
| 3. The bill is discounted with the bank | No entry | |||
| Bills Payable A/c | Dr. | xx | ||
| To Cash/ Bank A/c | xx | |||
| (Being payment made against the bill) | ||||
| a. In case of honor | Bills Payable A/c | Dr. | xx | |
| b. In case of dishonor | To Drawer’s A/c | xx | ||
| (Being bill dishonored) | ||||
| No entry | ||||
| 4. The bill is endorsed | Bills Payable A/c | Dr. | xx | |
| To Cash/ Bank A/c | xx | |||
| (Being payment made against the bill) | ||||
| a. In case of honor | Bills Payable A/c | Dr. | xx | |
| b. In case of dishonor | To Drawer’s A/c | xx | ||
| (Being bill dishonored) |
Holder/endorsee’s Books
| Date | Particulars | Amount (Dr.) | Amount (Cr.) | |
| 1. Endorsed to a creditor | Bills Receivable A/c | Dr. | xx | |
| To Drawer’s / Debtor’s A/c | xx | |||
| (Being endorsed bill received) | ||||
| a. In case of honor | Cash/ Bank A/c | Dr. | xx | |
| To Bills Receivable A/c | xx | |||
| (Being payment received against the bill) | ||||
| b. In case of dishonor | Drawer’s A/c | Dr. | xx | |
| To Bills Receivable A/c | xx | |||
| (Being bill dishonored) |
The drawer may feel that the drawee may dishonor the bill. In this case, he can give it to the Notary Public. Notary Public presents the bill to the Drawer for payment instead of the Drawer. If the bill is honored, they hand over the money to the Drawer.
In case of dishonor, they note the reasons for dishonor and give the bill back to the drawer. They charge fees for this known as Noting charges. In case of dishonor, the person who is responsible for the dishonor bears the noting charges.
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