In the second phase, entries for interest and drawing and accepting a new bill shall be recorded in the books of the parties. Thus, where A holds a bill for Rs 2,000 and endorses it in favour of B for Rs 1,000 and in favour of C for the remaining Rs 1,000, the endorsement is partial and invalid. The way is shown in the below. The Payee The person to whom the amount of bill is to be paid is known as payee of the bill. Accommodation Bill: For the purpose of providing financial benefits to a ready bill, one considers the bill approved by another as a sub-bill. On the basis of place, bills can be classified as inland bill and foreign bill.
The maturity date of the bill is also known to the parties of the bill so they can make necessary arrangement for funds iii Mode of Credit: Bill of exchange has been defined as a negotiable instrument under the Negotiable Instruments Act, 1881. Advantages of Bills of Exchange : The bills of exchange are used frequently in business as an instrument of credit due to the following reasons: i Legal Relationship: Issuing bills of exchange provides a framework which converts and establishes a legal relationship between seller and buyer, from creditor and debtor to drawer and drawee. Bill of exchange is drawn on the drawee who is the purchaser of goods. Inland bill may be a trade bill or accommodation bill, while foreign bill will be mostly a trade bill. Section 5 of the Negotiable Instruments Act, 1881 defines a Bill of Exchange as: 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.
Bills of exchange generally do not pay interest, making them in essence post-dated checks. To avoid dishonouring of the bill, he may request the drawer of the bill, to extend the maturity date. In international trade and also in the domestic circulation of the capitalist countries, the bill of exchange is used as one of the most important means for formalizing credit and account relationships; it performs various functions differing in character and is used, for example, as a payment document that is transferred in an established manner by one person to another in place of monetary payment. The foreign bill has been divided into two parts. Accommodation Bill The bill which is drawn and accepted by the parties concerned for their mutual accommodation with a view to raise money by negotiating it, is known as an accommodation bill.
This should be specified in the body of the bill. The promissory note is an instrument in writing containing an unconditional rule signed by one party to pay a certain sum of money only to, or to the order of a certain person or to the bearer of the instrument. Types of Endorsement: Bill can be endorsed in the following ways: i Blank Endorsement: In this type of endorsement, only signature of the transferor is required and the bill can be transferred by mere delivery. The law permits a conditional endorsement and therefore it does not in any way affect the negotiability of the instrument. Acceptance of the bill denotes that the drawee has agreed to pay the amount mentioned in the bill on the maturity of the bill or on demand, as the case may be. They become payable at ay time, when they are presented before payee by the holder. A bill of exchange is generally drawn by the creditor on his debtor.
If your answer is Yes then you are on the right track. It is worth mentioning here that instead of cash, bank account should be credited in the books of drawee because in banking transaction bank deals with the respective Bank of Drawee. Discussion Forum You can also share your thoughts about this article. Later, he endorses the bin in favor of his bank. B , the drawee, who accepts it thus becoming the acceptor of the bill and returns it to the drawer. The drawer and the payee are the same entity, unless the drawer transfers the bill of exchange to a third-party payee.
It is usually the drawer who is supplying goods to the value of the bill, and wants to be paid for them. Accounting Treatment : For recording the entries in the books of both the parties, the entries shall be passed in two phases. Without signature of the drawer the bill will not be genuine one. The journal entries for this in the books of debtor and creditor are as follows: Illustration 7. This might give you an understanding of the features of a bill of exchange which we will discuss in detail below. This person realizes all the assets of the acceptor of the bill and pays off to his creditors in proportion to their debts.
It benefits the importer, exporter and bankers equally. This document now binds the drawee to honour the bill on due date. It is drawn to obtain cash advances from financial institutions to meet financial needs due to pending payment from government departments. Transaction ii : In the books of A, no entry shall be passed as the bill has been transferred to C. The interest rate charged on clean bills is usually higher than documentary bills 5 Inland Bills — It is a bill of exchange that is drawn in India and payable in India or a bill drawn on an Indian resident, either payable in India or any other country.
Give the entries in the book of Hari. Time Bill - when the bill is payable on a predetermined future date. Section 56, however, further provides that where an instrument has been paid in part, a note to that effect ma; be endorsed on the instrument and it may then be negotiated for the balance. The exact amount of the payment is specified. This operates to convert an order bill to a bill payable to bearer and can be transferred by mere delivery.
On July 1, before the bill matured S. If Mr G also refuses to accept or pay then the bill will be considered as dishonoured. After Date Bill The bill whose tenure is counted from the date of drawing it is known as after date bill. However, in the following cases drawer and payee are two different persons: i When the bill is discounted by the drawer, the person who discounted the bill becomes the payee. In all these circumstances, the following journal entries shall be passed: Illustration 5. They have plenty of money to lend out to reliable customers so, they will advance money to the holder of bills of exchange. These bills have been prepared in the context of personal trust and close contact with importers and exporters.