Accountancy · Ch 6 — Accounting for Bills of Exchange

In the Books of Drawer/Promisor

6.7.1

A bill receivable can be dealt with by its receiver (the drawer/holder) in one of four ways.

He can:

Retain it till maturity, and either (a) collect it directly on the due date, or (b) send it to the bank for collection a few days before maturity;
Get the bill discounted from the bank; or
Endorse the bill in favour of his creditor.

Assuming the bill is honoured on maturity, the entries in the books of the receiver

(drawer/holder) under each alternative are:

(1) Bill retained till maturity and collected directly

Occasion	Journal Entry
On receiving the bill	Bills Receivable A/c Dr.; To Debtor's A/c
On maturity	Cash/Bank A/c Dr.; To Bills Receivable A/c

When the bill is sent to the bank for collection a few days before maturity

Occasion	Journal Entry
On sending the bill for collection	Bills Sent for Collection A/c Dr.; To Bills Receivable A/c
On the bank's advice that the bill is collected	Bank A/c Dr.; To Bills Sent for Collection A/c

(2) Bill discounted with the bank

Occasion	Journal Entry
On receiving the bill	Bills Receivable A/c Dr.; To Debtor's A/c
On discounting the bill	Bank A/c Dr. and Discount A/c Dr.; To Bills Receivable A/c
On maturity	No entry — the bill has become the bank's property, so the bank collects from the acceptor.

(3) Bill endorsed in favour of a creditor …