Book-Keeping and Accountancy · Ch 7 — Bills of Exchange
Basic Accounting Entries — Drawing and Acceptance of a Bill
Basic Accounting Entries — Drawing and Acceptance of a Bill
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.
Step 1 — the underlying credit transaction. A bill of exchange is almost always drawn to settle an amount already owed — most commonly, goods sold on credit. This first entry is the ordinary sales/purchase entry already familiar from earlier chapters, and is not specific to bills at all:
| In the books of the seller (future drawer) | In the books of the buyer (future drawee) |
|---|---|
| Buyer's A/c ......Dr | Purchases A/c ......Dr |
| To Sales A/c | To Seller's A/c |
Step 2 — drawing and acceptance of the bill. Once the drawer draws the bill and the drawee accepts and returns it, the amount is transferred out of the ordinary personal account into the two bill-specific accounts — Bills Receivable (an asset, in the drawer's books) and Bills Payable (a liability, in the drawee's books):
| In the books of the Drawer | In the books of the Drawee (Acceptor) |
|---|---|
| Bills Receivable A/c ......Dr | Drawer's A/c ......Dr |
| To Drawee's A/c | To Bills Payable A/c |
The asset account in the drawer's (holder's) books representing accepted bills held, due to be received on their …
The liability account in the drawee's (acceptor's) books representing accepted bills, due to be paid on their r …