Ch 7Bills of Exchange — Class 12 Book-Keeping and Accountancy, concept-first.

A trader who sells goods on credit does not always want to wait for cash whenever the customer chooses to pay — very often the seller wants a firm, legally enforceable promise of payment on a fixed fu…

Every bill of exchange, at the time it is drawn, involves three parties — though, as explained below, two of these roles can be filled by the same person.

Both a Bill of Exchange and a Promissory Note are negotiable instruments recognised under the Negotiable Instruments Act, 1881, and both evidence a promise to pay money — but they differ in several im…

Three closely related terms decide exactly when a bill of exchange must be paid, and getting the due date right is the starting point of every accounting entry in this chapter.

Before studying the different things a holder can do with an accepted bill, it helps to fix the two entries that open every single bill-of-exchange problem, in the books of both parties.

The simplest course of action for a drawer holding an accepted bill is to do nothing with it — simply retain it until its due date and then present it to the drawee for payment.

Instead of waiting for the due date, a drawer holding an accepted bill can get immediate cash by selling (discounting) it to a bank before maturity.

A holder of an accepted bill may also endorse it — sign it over — to a third party, most commonly one of the holder's own creditors, in full or part settlement of a debt the holder owes that creditor.…

A holder may also use the bank purely as an agent for collection — asking the bank to present the bill to the drawee on the due date and collect the money on the holder's behalf, for a small collectio…

A bill is dishonoured when the drawee (acceptor) fails to pay it on the due date, whether the bill is still held by the drawer, has been discounted with a bank, endorsed to a creditor, or sent for col…

Sometimes a drawee genuinely cannot pay on the due date but is not acting in bad faith — instead, the drawee approaches the drawer before the due date and requests that the old bill be cancelled and a…

The opposite situation to renewal is retirement — here, the drawee wants to pay the bill before its due date, not after.

Sample papers and previous-year board questions for this subject.