Q.Kiran and Mahesh agreed to a mutual accommodation. Kiran drew a bill for ₹20,000 on Mahesh, payable 3 months after date, purely for financial accommodation and not arising from any trade transaction. Mahesh accepted it and returned it to Kiran, who discounted it with his bank at 12% p.a. for the full 3 months and remitted half of the net proceeds to Mahesh. Journalise these transactions in the books of both Kiran and Mahesh, up to the point of sharing the discounted proceeds.

An accommodation bill has no real trade transaction behind it — it exists purely to be discounted for finance, with the net proceeds shared between the two parties in an agreed ratio. …

An accommodation bill is drawn and accepted purely to help one or both parties raise finance, with no real underlying sale of goods behind it — the bill exists only so that it can be discounted with a bank, and its net proceeds are then shared or used as agreed between the two parties.

Step 1 — Discount. Discount = ₹20,000 × 12% p.a. × 3/12 = ₹600.

Step 2 — Net proceeds. ₹20,000 − ₹600 = ₹19,400.

Step 3 — Mahesh's share. Half of ₹19,400 = ₹9,700.

In the books of Kiran (Drawer, who discounts the bill)

In the books of Mahesh (Drawee, who receives a share of the proceeds)

Treating the bill as if it arose from a real sale and crediting Sales/Purchases; forgetting that Mahesh must arrange the balance of funds himself on the due date since he received only half the net proceeds, not the f …