Bill of Exchange Test - 4

the person to whom the bill is endorsed is called endorsee.

In a bill of exchange one person (drawer) directs (orders) another person (drawee) to make the payment to the payee(payee may be the drawer himself or a third party).

ASSETS- An asset is a resource controlled by an entity as a result of past events and from which future economic benefits are expected to flow to the entity.

              since bills receivable results in a future economic benefit to the entity hence it is an asset. it is shown as an asset on the balance sheet.

due date of the bill of exchange- 30 January 2011+ 1 month+3 days(days of grace)= 3 March 2011

days of grace= days of grace means 3 extra days added to the period of a bill. however, days of grace are not allowed when a bill is payable on demand or at sight.

a bill of exchange has three parties namely- drawer, drawee and payee.

Fee paid to the notary public is charged by the holder of the bill from drawer or any of the previous endorser. noting charges is paid for noting and protesting the bill of exchange of its dishonour.

since the journal is a book of original entry because a transaction is first recorded in the journal then it is transferred to the ledger. hence the origin of bill receivable book is the journal.

If the due date of a bill falls on a day which is a public holiday the due date of the bill shall be the presceding business day.

it is a custom to add 3 days in the period of a bill to calculate due date of the bill. such 3 extra days are called days of grace.

The payee is the person whose name is mentioned in the bill of exchange and to whom the amount is to be paid. the payee may be the drawer himself or a third party.

if an endorsed bill is dishonoured, the liability of drawee will be restored( since he has not made payment to endorsee) and liability to endorsee(since endorsee has not received the payment) will also be restored. the journal entry is:

             drawer                   DR

                  To endorsee

   ( being endorsed bill is dishonoured)

because of the inability of the drawee to pay the amount of bill he requests the drawer to substitute the old bill with a new one. this is called the renewal of the bill.

In the case of renewal of bill, if the acceptor doesn't pay interest then it will be included in the amount of the bill.

Sometimes, the drawee shows his inability to pay the amount of bill before the date of maturity, in such cases, he requests the drawer to renew the bill.

Noting charge is paid by the drawer to the notary public just to get the evidence of dishonour but subsequently, it is recovered from the draweer.

the promissory note should be signed by the maker of the promissory note, i.e., promisor.

a bill may be encashed before the maturity of the bill by presenting it to any bank. the bank shall disburse the amount of bill after deducting its charges(discounting charges).

bill of exchange is a valid evidence of debt because it is a legal document under the negotiable instrument Act, 1881.

if a bill of exchange is dishonoured, the liability of the drawer(creditor) will be restored. hence, in such case in the books of the drawee, drawer A/C will be credited. the journal entry is:- bills payable A/C

Dr

noting charges A/C                    

Dr

To drawer A/C(creditor)

(being bill is dishonored and credit of drawer is restored)

payee means the person named in the bill and to whom payment is to be made. in the given case, Sahil shall make payment to Rakesh. hence, Rakesh is the payee.