Final Accounts of a

Banking Company

Bill of Exchange
Discounting of bill of Exchange
Rebate on Bills Discounted
 Bills of
Exchange

ANAND BADAL

AFTER 3 MONTHS
 Discounting of bill of exchange

What if Anand needs

ANAND
cash BADAL
during three months

AFTER 3 MONTHS

PROFIT OF Rs.2
Bank

A Bill of Rs.100 is
purchased for Rs.98
i.e. at a discount of
Rs.2
 Rebate on bills discounted

Date of
Profit & Loss A/c Year ending Not included
Balance Sheet Of a bank
31st March, 07

Date of Bill : 1st Feb

Maturity : 4 months
Amt. : Rs.3,000
Rate : 12% p.a.

1st Mar, 1st Apr. 1st May, 1st June + 3 days of grace = 4th June
April (30) + May (31) + June (4) = 65 days
3,000 X 12% / 365 X 65 = Rs.64.11
 Rebate on bills discounted means unearned discount.
Whenever a bank receives a bill for discounting, it
debits the Bills Discounted Account with the present
cash value i.e. discounted value of the bill. The
discount which is an item of income is credited with
full amount irrespective of the due date of the bill.
However, if the due date of the bill falls after the date
of balance sheet, then the full amount of discount
cannot be taken as an income of the current year.
The portion of the discount which relates to the period
after the balance sheet date, i.e. the period from the
balance sheet date till the date of the maturity of the
bill, must be excluded from the discount while taking
credit to P and L account of the current year. It is like
income received in advance. It is reduced from
discount by passing the following journal entry.
 Journal entry for discounting of bills of exchanges
(in the books of bank)

Date Particulars Debit Credit

When bills Bills Discounted A/c Dr. 3000
are To Bank 2880
discounted To Discount 120
(Total Amount of Discount)
(3,000 X 12% / 12) X 4 months

Date Particulars Debit Credit

For Rebate Discount A/c Dr. 64.11

on bills To Rebate on bills discounted 64.11
discounted
And the rebate is shown on the liability side of the of
the current year’s balance sheet
Thank you