DEPARTMENT OF TECHNICAL EDUCATION

ANDHRA PRADESH
Name of the staff member: Sreenivasa Rao B.
Designation : Lecturer in CCP

Branch : COMMERCIAL AND COMPUTER

PRACTICE
Institute : S.U.V.R&S.R GPW, Ethamukkala
Semester : III
Subject Name : Accountancy II
Subject Code : CCP 302
Major Topic : Bills of Exchange
Duration : 50 + 50 [100] minutes
Sub Topic : Accounting Treatment incase of
a honour of a bill.
Teaching Aids : PPTs
CCP-302 - 39 & 40 1
 Learning Objectives :

On Completion of this class,

you will be able to understand :
 Recording the entries when the bill is discounted
with a banker

 Recording the entries when the bill is drawn and

endorsed to a third party

 Recording the entries when the bills is send to

bank for collection

CCP-302 - 39 & 40 2
Recap
In the previous class, we have discussed the

 Recording of Bill Transactions , when the drawer

receives a bill duly accepted

 Retaining the bill by the drawer till due date and

present it to the drawee on maturity

CCP-302 - 39 & 40 3
I. When a Bill is discounted
 Cash is required for day to day running of the
business, many businessmen do not keep their
bills with them till the date of maturity
 When the drawer or holder of a bill wants to get
the money before maturity he can sell the same to
his bank. This process is called discounting of the
bill
 The banker will deduct some amount, known as
discount from the bill and the balance amount will
be credited to the drawer’s / holder’s: a/c

CCP-302 - 39 & 40 4
 For example: A bill for Rs. 3000/- for 4
months is discounted at 6 % per annum then
 discount = 3000 X 6/100 X 4/12 = Rs. 60/-
 ∴ Discount is Rs. 60/-
 The payment to a Drawer / holder
 is Rs. 3000 – 60 = Rs. 2940/-
 It the bill is discounted two months after its
acceptance then:
 discount= 3000 X 6/100 X 2/12 = Rs. 30/-
 The payment value is Rs. 3000 – 30 = Rs. 2970/-
CCP-302 - 39 & 40 5
The following are the Journal entries will be recorded in the
Books of Drawer and Drawee when the bill is got discounted
with the banker.

Sl.
Transaction In the Books of Drawer In the Books of Drawee
No.
Bills Receivable A/c Dr
When bill was Drawer A/c Dr
To Drawee’s A/c
I received by drawer To bills payable A/c
from the Drawee [Being acceptance
[Being acceptance given]
received]

Bank A/c Dr
Discount A/c Dr
When the bill was
2 To bills receivable A/c No entry
discounted
[ Being bill discounted
with bank]
Bills payable A/c Dr
When the bill was
To cash A/c
3 honoured on No entry
maturity date [ Being payment of bill
made on due date]
CCP-302 - 39 & 40 6
Problem

 X received an acceptance from Y for Rs. 3000/-

on 1st April, 2007 for 2 months. X got it

discounted at 6 % p.a. at SBI, India on the due
date , Y met his acceptance

Record the Journal entries in the book of X and Y

CCP-302 - 39 & 40 7
 Solution:
Journal of X

Dr. Cr.
Date Particulars L.F. Amount Amount
Rs. Rs.

1.4.07 Bills Receivable A/c Dr 3,000

To Y’s A/c 3, 000
[Being acceptance received for 2
months]
Bank A/c Dr 2, 970
Discount A/c Dr 30
To Bills receivable A/c 3,000
[Being bill discounted with bank
at 6 % p.a]
CCP-302 - 39 & 40 8
 Journal of Y

Dr. Cr.
L
Date Particulars Amount Amount
.F.
Rs. Rs.

1.4.07 X’s A/c Dr 3,000

To Bills payable A/c 3, 000
[Being acceptance received for
2 months]
4.6.07 Bills payable A/c Dr 3,000
3,000
To cash A/c
[Being bill honoured on
maturity date]

CCP-302 - 39 & 40 9
III. Endorsement of Bill:
Endorsement means it is an act of signing the
bill on its back by the maker or holder thereof for
paying to his creditor

 Endorser- The person who signs on the reverse

side of the bill is called ‘Endorser’

 Endorsee- The person to whom it is given is

called ‘Endorsee’

CCP-302 - 39 & 40 10
Entries in the books of Drawer, Drawee and Endorsee

In the books of
Item
Drawer Drawee Endorsee
Bills receivable A/c
Drawee A/c Dr.
Dr
When bills To bills payable
To Drawee’s A/c No Entry
received [Being the bills
[Being bills received
payable accepted]
from Drawee]
Bills receivable A/c
Dr.
When bills Endorsee A/c Dr.
To Drawer’s A/c
are To bills Receivable No Entry
endorsed A/c [Being the receipt of
duly endorsed bill
from drawer]
When the Bills payable A/c
Cash A/c Dr.
bill was Dr.
To bills receivable
honoured To cash A/c
No entry A/c
on [Being bills
maturity [Being cash received
honoured on
date on maturity]
maturity date]
CCP-302 - 39 & 40 11
Problem:

On 1.7.07 Bat & Co. , sells goods worth Rs. 3000 to

Goal & Co., and Draws a bill on Goal & Co., for the
amount at 3 months.
On the same day Bat & Co., purchased goods from
Sarath & Co., for Rs. 3000/- and endorses the Goal
& Co., acceptance to Sarath & Co., in settlement of
the account: the bill is finally honoured.

Journalise the transactions in the books of Bat & co.,

Goal & Co., and Sarath & Co.,
CCP-302 - 39 & 40 12
 Journal of Bat & Co.,
Dr. Cr.
Date Particulars L.F. Amount Amount
Rs. Rs.
1.7.07 Goal & Co., A/c Dr 3,000
To sales A/c 3, 000
[Being goods sold to Goal & Co.]
Bills receivable A/c Dr 3,000
To Goal & Co., A/c 3,000
Being GOAL”S acceptance received]
Purchases A/c Dr. 3,000
To Sarath & Co. 3,000
[Being goods purchased form Sarath &
Co.]
Sarath & Co., A/c Dr. 3,000
To Bills receivable A/c 3,000
[Being the bill endorsed to Sarath &
Co.,] CCP-302 - 39 & 40 13
 Journal of Goal & Co.,

Dr. Cr.
Date Particulars L.F. Amount Amount
Rs. Rs.
1.7.07 Purchase of A/c Dr 3,000
To Bat & Co., A/c 3, 000
[Being goods purchased form Bat
& Co.]
Bat & Co., A/c Dr 3,000
To bills payable A/c 3,000
[Being acceptance given to Bat &
4.10.07 Co., ]
Bills payable A/c Dr. 3,000
To cash A/c 3,000
[Being payment mode on dueCCP-302 - 39 & 40 14
date]
 Journal of Sarath & Co.,
Cr.
Dr. Amoun
Date Particulars L.F. Amount t
Rs.
Rs.
1.7.07 Bat & Co., A/c Dr 3,000
To sales A/c 3, 000
[Being goods sold to Bat &
1.7.07 Co.]
Bills receivable A/c Dr 3,000
To Bat & Co A/c 3,000
[Being the bill received duly
4.10.0 endorsed by Bat & Co., ]
7 Cash A/c Dr. 3,000
To Bills receivable A/c 3,000
[Being cash received on CCP-302 - 39 & 40 15

maturity]
• Bills sent to the bank for collection.

When a firm receives number of bills every day,

it becomes difficult to trace the due dates of
different bills.

The firm may entrust the work of collection of

amount on bills receivable to his banker.

The banker do this collection work on behalf of

customer for certain commission.

CCP-302 - 39 & 40 16
 When a bill is sent to bank for collection , bank a/c
is not debited by the Drawer because bank does
not become his debtor

 A special Account called Bills sent to bank for

collection account is opened for the purpose

 The newly opened account is a personal a/c in

nature , hence it will be debited and bills
receivable A/c will be credited
CCP-302 - 39 & 40 17
The drawer and drawee Pass the
following journal entries in their books
Sl. In the Books of
Transaction In the Books of Drawer
No. Drawee
Bills Receivable A/c Dr
Drawer A/c Dr
When bill was To Drawer
I To bills payable A/c
received [Being the bill received from [Being accepted ]
drawee ]
Bill sent to bank for
When the bill collection A/c Dr
was sent to
2 To bills receivable A/c No entry
bank for
collection [ Being bill sent for
collection ]
Bank A/c Dr.
Bills payable A/c Dr
Bill is To bills sent to bank for
To cash A/c
3 honoured on collection A/c [
the due date [Being payment of bill
[Being the proceeds of the
on maturity date]
bill collected by Bank]
CCP-302 - 39 & 40 18
Illustration:

On 22.11.07 Shanthi purchased goods worth Rs.

10000 on credit form Dasu and accepted a bill drawn
upon her by the later for the same amount for 2
months.

Dasu sends the bill to his bank for collection before

the due date on 15th December, 2007. On the due date
the banker duly presents the bill and collected the
amount. Pass the entries in both the books.
CCP-302 - 39 & 40 19
 Journal of Dasu
Dr. Cr.
Date Particulars L.F. Amount Amount
Rs. Rs.
22.11.07 Shanti A/c Dr 10,000
To sales A/c 10, 000
[Being goods sold on credit]
15.12.07 Bills receivable A/c Dr 10,000
To Shanthi’s A/c 10,000
[Being the bill received for 2 months ]
15.12.07 Bills sent to bank for collection A/c Dr. 10,000
To bills receivable A/c 10,000
[Being the bill sent to bank for collection]
25.1.08
Bank A/c Dr. 10,000
To bills sent to bank for collection A/c 10,000
[Being the amount collected by bank on the
bill sent to bank for collection]
CCP-302 - 39 & 40 20
 Journal of Shanthi
Dr. Cr.
Date Particulars L.F. Amount Amount
Rs. Rs.
22.11.07 Purchase A/c 10,000
Dr 10, 000
To Dasu A/c
22.11.07 [Being goods purchased on credit]
Dasu’s A/c Dr 10,000
To bills payable A/c 10,000
25.1.08 [Being the acceptance given to
Dasu ]

Bills payable A/c 10,000

Dr. 10,000
To cash A/c
[Being the payment of the bill on
the due date]
CCP-302 - 39 & 40 21
Summary

In this class we have so far :

 Discussed and recorded the entries when the bill is

discounted with a banker

 Discussed and recorded the entries when the bills

drawn and endorsed to a third party

 Discussed and recorded the entries when the bills

is sent to bank for collection

CCP-302 - 39 & 40 22
 Quiz

1. How many grace days are allowed for a bill.

c) 4 days

d) 3 days

e) 5 days

f) 7 days

CCP-302 - 39 & 40 23
2. Name of the person who draws a bill of exchange.

b) Drawer

c) Endorser

d) Debtor

e) Payee

CCP-302 - 39 & 40 24
3. Name of the person to whom the bill is made
payable.

b) Payee

c) Creditor

d) Drawer

e) None

CCP-302 - 39 & 40 25
 Assignment
1. On 1.5.07 Prasad sold goods worth Rs. 3000/- to
chandra and draw upon the later a bill for the
amount payable three months after date.
Chandra duly accepted the bill

Give the necessary Journal entries in the books

of both the parties.

a. If Prasad retained the bill with him till maturity and

honoured by Chandra
CCP-302 - 39 & 40 26
a. If he endorsed the bill to Mr. Balu immediately ,
his creditor, and the bill was honoured on due date

b. If he had discounted the bill with his bank on

1.6.07 @ 5 % p.a. and the bill was honoured on
due date

c. If he had sent the bill to his banker for collection

and the bill was honoured on maturity

***

CCP-302 - 39 & 40 27