Account M.C.Q (1 Marks)

The person, either the drawer or holder, who endorses the bill to any one by signing on the back of it is called an endorser. And the person on whose favor a bill is endorsed is called as Endorsee.

The bill of exchange is endorsed by the drawer of the bill. It can never be endorsed by the drawee. Hence, there will not be any journal entry in the books of the drawee.

According to the Negotiable Instruments Act, 1881, a promissory note is defined as an instrument in writing (not being a bank note or a currency note), containing an unconditional undertaking signed by the maker, to pay a certain sum of money only to or to the order of a certain person, or to the bearer of the instrument.
However, according to the Reserve Bank of India Act, a promissory note payable to bearer is illegal. Therefore, a promissory note cannot be made payable to the bearer.

The Journal.

Bill of Exchange - A non-interest - bearing written order used primarily in international trade that binds one party to pay a fixed sum of money to another party at a predetermined future date.

Bills of exchange are similar to cheque and promissory notes. hey can be drawn by individuals or banks and are generally transferable by endorsements.

Bill of exchange is a liquid asset and also can be discounted by bank before its maturity and hence it is sometimes known as near money.

Bills payable are initially recorded in in the bill payable account. It has a credit balance.

When we finalize the the account it will be shown in balance sheet as current liability.

When the Drawee makes payment of the bill after its exact tenure i.e on its due date, it is said that the bill is honoured.

A bill is discharged by payment in due course by or on behalf of the drawee or acceptor.
While preparing the journal entry for discharge of bill Bills payable account is debited and Drawer account is credited.

When the Drawee pays the bill before its due date, It is termed as the retirement of a bill. It happens with the mutual understanding between the Drawer and the Drawee. To encourage Retiring of the bill, the holder allows some discount called Rebate on the bill amount from the date of retiring the bill to the maturity.

A bill, draft, or note made, drawn, accepted, or endorsed by one person for another without consideration to enable that other to raise money or obtain credit thereby.

A bill of exchange is generally drawn by the creditor upon his debtor. It has accepted by the drawee (debtor) or someone on his behalf.
A seller/ creditor who is entitled to receive money from the debtor can draw a bill of exchange upon the buyer/ debtor.

The foreign bill of exchange is a payment drawn up in one country that is payable in another country.

A contingent liability is a liability that may or may not happen. This means there is uncertainty about recording such a liability in the financial accountsPotential lawsuits, product warranties, and pending investigations are some examples of contingent liability.

Acceptance is not an essential requirement of a valid promissory note.

The statement noted by the lawyer will be the documentary proof for the dishonour of the bill. Writing this statement by the lawyer is known as noting of the bill. The lawyer performing this work of noting the bill is called as the 'Notary Public'. A notary public is an official appointed by the Government.

In case the bill is dishonor of the bill, Noting charges will be charged by the holder of the bill.

Due date of bill = 4 months + 3 days of grace.
Therefore, Due date = 5th June.

The period intervening between the date on which a bill is drawn and the date on which it becomes due for payment is called Term of Bill. It denotes tenure of the bill i.e time period.

Drawer

The average due date is known as the equated or mean date on which a payment is made in lieu of several payments that are due of several different dates without any kind of interest for both the parties that are involved.

The party upon whom the bill is drawn is called the drawee.

He is the person to whom the bill is addressed and who is ordered to pay.

Consignor, in a contract of carriage, is the person sending a shipment to be delivered whether by land, sea or air. In a consignment sale, consignor sends a proforma invoice.

When the drawer holds the bill till the date of maturity.

Commercial paper is an unsecured, short - term debt instrument issued by a corporation, typically for the financing of accounts payable and inventories and meeting short - term liabilities.

In the case of term loan interest payments, an account will be classified as NPA if the interest applied at specified rates is overdue for more than 90 days.

Del credere commission is a commission which is paid as a direct commission instead of paying through someone else.

It is for the surety that is liable to the principal should the purchaser make default.

The previous bill is cancelled and a new one with new terms of payment is drawn, officially accepted, and delivered when the acceptor of the bill visits the drawer and requests an extension of time for payment. The bill renewal is what we refer to as here.

Erson who draws a bill of exchange is known as drawer and the person who is accepting the bill is called drawee.

Only drawee can retire the bill before due date.

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The person on whom the bill is drawn is called drawee. Bill needs to be signed (accepted) by the drawee, Therefore when drawee accepts the Bill, it also becomes the ACCEPTOR

Rebate.

It is undertaking as a 1000 rupee note.

A “promissory note” is an instrument in writing (not being a bank-note or a currency-note) containing an unconditional undertaking signed by the maker, to pay certain sum of money only to, or to the order of, a certain person, or to the bearer of the instrument

Rebate on Bills Discounted is also known as Discount Received in Advance, or, Unexpired Discount or, Discount Received but not earned.

Its treatment is same as we do in the case of Interest Received in Advance.

A payee is a person to whom a cheque or bill of exchange is written.
For example, payee may be called as beneficiary of the instrument.

For example, Ram has given a cheque of Rs.1000 to Saurabh.

In such case, Ram is a payer and Saurabh is a payee.

Maturity date is the date on which a bill falls due for payment.

The maturity date refers to the moment in time when the principal of a fixed income instrument must be repaid to an investor.

According to the Negotiable Instruments Act, 1181, a bill of exchange is defined as 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.

The term maturity refers to the date on which a bill of exchange or promissory note becomes due for payment. In arriving at maturity date, three days, known as days of grace, must be added to the date on which the period of credit expires.

Forfeiture is not part of bill of exchange as forfeiture of shares is referred to as the situation when the allotted shares are cancelled by the issuing company due to non-payment of the subscription amount as requested by the issuing company from the shareholder.

Insolvent is the person whose assets are not sufficient to pay off his liabilities in full.

In case of insolvency of the acceptor, the holder would get the proportionate amount of what is due from the bill.

The journal entry for the transaction should be:-

B's A/c Dr.

To Bills receivables A/c

Sometimes the acceptor of the bill foresees that it may be difficult to meet the obligation of the bill on maturity and may, therefore, approach the drawer with the request for extension of time for payment.

In such cases the old bill is cancelled and fresh bill with new terms of payment is drawn it is called as renewal of bill.

Bill of Lading, Dock - warrant, Warehouse - keeper certificate, Railway receipt, and delivery orders, etc. can be said as the documents of title to goods.

Drawer is the maker of the bill of exchange. A seller/ creditor who is entitled to receive money from the debtor can draw a bill of exchange upon the buyer/ debtor.

The drawer after writing the bill of exchange has to sign it as maker of the bill of exchange.

Three.

Commercial paper is an unsecured, short term debt instrument issued by a corporation, typically for the financing of account receivable, inventories and meeting short term liabilities.

A cheque is a bill of exchange drawn on a specific bank and not expressed to be payable otherwise than on demand.
It includes the electronic image of a truncated cheque and a cheque in the electronic form.
The maker of a cheque is called the 'drawer', and the person directed to pay is the 'drawee'.

According to section 4 of the Negotiable Instruments Act, 1881, a promissory note is defined as an instrument in writing, containing an unconditional undertaking signed by the maker, to pay a certain sum of money only to or to the order of a certain person, or to the bearer of the instrument.

However, according to the Reserve Bank of India Act, a promissory note payable to bearer is illegal.

This is the reverse of the product method. The number of days are calculated from the beginning of the accounting period to the date of transaction.

If the holder of the bill needs funds, he can approach the bank for encashment of the bill before the due date. The bank shall make the payment of the bill after deducting some interest.

This process of encashing the bill with the bank is called discounting the bill whereby the holder of the bill gets money from the bank.

While passing journal entry for discounting the bill the bank account is debited. The bank then recovers the amount from the drawee on the due date.