Bills of exchange ppt

bill of exchange and promissory note ppt and advantages and disadvantages of bill of exchange
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Published Date:25-07-2017
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Bills of Exchange and Promissory Notes-Part 3/6 CPT Section A Fundamentals of Accountancy Chapter 7 Unit 3 CA. Ajay Lunawat ACCOUNTING TREATMENT - Basics Accounting Entries for Seller • Debtor A/c Dr. At the time of To Sales A/c credit sales At the time of •Bank A/c Dr. receipt of To Debtor A/c payment Accounting Entries for Buyer At the time of • Purchase A/c Dr. credit To Creditor A/c purchase At the time of •Creditor A/c Dr. making the To Bank A/c payment Accounting Treatment In the Books of In the Books of DRAWER DRAWEE Drawer’s Situation • Receives a Promissory Note or • Receives an accepted Bill of Exchange Treatment : A new asset : BILLS RECEIVABLE Drawee’s Situation • Makes a Promissory Note or • Accepts a Bill of Exchange Treatment : A new liability : BILLS PAYABLE ACCOUNTING TREATMENT In the Books of Drawer In the Books of Drawer At the time of Acceptance of Bill Bill Receivable A/c Dr. To Debtor A/c Example 1 A accepts a Bill of exchange drawn on him by B. In the books of B the entry will be Bills Receivable A/c Dr. To A’s A/c Example 2 A sends to B the acceptance of D. In this case also, the entry in the books of B will be Bills Receivable A/c Dr. To A’s A/c DRAWER has 3 Options Hold till Discount Endorse Maturity with Bank Held Till Maturity Drawer retains the bill till the date of maturity No transaction to be recorded till the date of maturity On the date of maturity, either the bill is • Honored • Dishonored Accounting for DRAWER Held Till Maturity – On Honour Bank/Cash A/c Dr. To Bills Receivable A/C Endorsement of Bill Drawer has a liability towards some third party, say, creditor He endorses the bill to the third party The Bill Receivable, which is an asset, is thus used to settle another liability Accounting for DRAWER At the time of Endorsement Endorsee/Creditor A/c Dr. To Bills Receivable A/c Example 3 B draws a bill on A for Rs. 3,000. B has to pay C Rs. 3,000. He endorses this bill to C. What are the entries to be passed Bills Receivable A/c Dr. 3,000 To A’s A/c 3,000 C’s A/c Dr. 3,000 To Bill’s Receivable A/c 3,000 Accounting for DRAWER Endorsement – Honour of Bill No Entry in the books of DRAWER Discounting with Bank Drawer is urgently in need of money He approaches a bank, hands over the B/R to bank, and gets cash The bank deducts sum amount called as “DISCOUNT” in the form of finance charges Accounting for DRAWER Discounts with Bank Bank/Cash A/C Dr. Discount A/c Dr. To Bills Receivable A/C

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