Drawing, Acceptance, and Payment of Bills of Exchange:
Learning Objectives:
-
Make journal entries in the books of creditor
and debtor at the time of drawing, acceptance, and payment of a bill of
exchange.
When a bill is written it is known as
"drawing" a bill. The person who draws it is the creditor and the person to
whom it is addressed is the debtor. The creditor and the debtor are also
known as the drawer and the drawee respectively. When the drawee signifies
his assent to the order in writing he becomes the acceptor of the bill if
exchange. It is said to be discharged when the acceptor makes the actual
payment on the bill on the maturity date. Journal entries in the books of
drawer and drawee are as under:
Creditor's Books
| (a) When a bill of exchange is drawn and accepted. |
| Bill receivable account [Dr] |
| To Acceptor's personal account
[Cr.] |
| (b) On the due date the acceptance will be
presented to the acceptor for payment.
If the payment is received directly: |
| Cash account [Dr.] |
| To Bills receivable account
[Cr.] |
Debtor's Books:
| (a) When the bill
is accepted by the drawee. |
| Personal account of the
drawer [Dr.] |
|
To Bills payable account
[Cr.] |
| (b) When the bill
is met on maturity. |
| Bills payable account
[Dr.] |
|
To Cash account [Cr.] |
Example:
X sold goods to Y for $1,000 on 1st January
1991 and draws on Y a bill of exchange at three months for this amount. Y
accepts the bill and returns it to X. The bill is dully met at maturity.
Show the journal entries to record the transactions in both the parties
books
Journal Entries in the Books of X
| 1991 |
|
|
$ |
$ |
| Jan. 1 |
Y |
|
1,000 |
|
| |
To Sales account |
|
|
1,000 |
| |
(Goods sold on
credit) |
|
|
|
|
|
|
|
|
| Jan. 1 |
Bills
receivable account |
|
1,000 |
|
| |
To Y |
|
|
1,000 |
| |
(Acceptance
received) |
|
|
|
| |
|
|
|
|
| Apr. 4 |
Cash account |
|
1,000 |
|
|
To Bills receivable account |
|
|
1,000 |
|
(Amount of the
bill received) |
|
|
|
|
|
|
|
|
Journal Entries in the Books of Y
| 1991 |
|
|
$ |
$ |
| Jan. 1 |
Purchases
account |
|
1,000 |
|
| |
To X |
|
|
1,000 |
| |
(Goods
purchased on credit) |
|
|
|
|
|
|
|
|
| Jan. 1 |
X |
|
1,000 |
|
| |
To Bills payable account |
|
|
1,000 |
| |
(Acceptance
given) |
|
|
|
| |
|
|
|
|
| Apr. 4 |
Bills payable
account |
|
1,000 |
|
|
To Cash account |
|
|
1,000 |
|
(Acceptance
paid) |
|
|
|
|
|
|
|
|
|
