Bill of Exchange
Parties and terms
The drawer makes the bill, the drawee accepts it and becomes the acceptor, and the payee receives payment. A bill may be at sight or after a tenor. The due date is the date of maturity plus three days of grace. The drawer may keep the bill till maturity, discount it with a bank, or endorse it. On dishonour, the holder may get the bill noted and recover noting charges from the drawer. Retirement before due date may involve a rebate.
Worked example
A drawer sells goods for ₹50,000 and draws a three-month bill on the drawee, who accepts it. After one month, the drawer discounts the bill at 12% per annum. Remaining period is two months, so discount = ₹50,000 × 12/100 × 2/12 = ₹1,000. Proceeds = ₹49,000. Entry in the drawer's books: Bank A/c Dr ₹49,000; Discount A/c Dr ₹1,000; To Bills Receivable A/c ₹50,000. Reasoning: the bank deducts discount for the unexpired period and pays the net amount.
Traps that cost marks
Do not forget the three days of grace when calculating the due date. Discount is calculated for the unexpired period, not always the full tenor. On dishonour, reverse the bill entry and record the drawee as a debtor, including noting charges. Do not confuse endorsement with discounting. Renewal may require interest and part payment. The acceptor is the drawee after acceptance.