Bill of Exchange

 According to Indian Negotiable instrument Act 1881;

 Bill of Exchange:-
 Unconditional order to pay certain amount on an agreed date
 Generally drawn by the creditor upon his debtor.
 It is just a draft till its acceptance is made by the Drawee.
 Drawer: -
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.
Drawee: -
Person upon whom the bill of exchange is drawn. It’s the purchaser or debtor of goods.
Payee: -
Person to whom the payment is to be made. Generally same as Drawer.
 Promissory Note:-
 Unconditional promise to pay a certain sum of money on a certain date.
 It does not require any acceptance because the maker promises to pay.
 Payable to bearer is illegal.
 Maker/Drawer/Promiser:-
Who makes the promissory note to pay a certain amount as specified in the note.
Drawee/Payee/Promisee:-
A person in whose favour the promissory note is drawn.

Maturity of Bill:-

 The date on which a bill of exchange or a promissory note becomes due for payment
 In arriving the maturity date three days known as days of grace
Example:- Bill dated – March 5
Payable-- 30 days after
Falls due on – April 7
Maturity date—April 8 (If this is on holiday, maturity day becomes the preceding day)
(If emergent holiday, maturity day becomes the following day )

Discounting of Bill:-

 The process of encashing the bill with the bank is called discounting the bill.
 The bank deducts some charges from the Drawee on the due date.

Endorsement of Bill:-

 The act of signing and transferring the bill is called endorsement.

 The drawer signs at the back of the bill along with the name to whom it is being transferred.

Dishonoring of a Bill:-

 When the drawee fails to make the payment on the date of maturity.
 In this situation liability of the acceptor is restored.
 So the entries made on the receipt of the bill should be reversed.
Renewal of the Bill:-
 Drawee requests the Drawer to extend the time for payment.
 Old bill is cancelled and anew bill is made. This is called so.
 Noting of bill is not required., since it’s a mutual agreement.

Retiring of the Bill:-

 If the drawee makes the payment before maturity, the bill said to be retired.
 Some rebate is given to drawee.

Accommodation Bill:-
 An acceptance is made to settle a trade debt owing to the drawer by the drawee in case of a bill of
exchange and the bill is called a trade bill.
 Promising notes can also be used to raise temporary funds. This is called accommodation bill.
Drawee is called accommodating party. And drawer is called accommodation party.

Bills Receivable Book & Bills payable Book:-

 These subsidiary books record only the transactions related to drawing & acceptance of bills.
 It does not record bills discount, endorsement, retirement, renewal. These are done in journal.
 Honouring of bill appear in Cash Book.