Book-Keeping and Accountancy · Ch 7 — Bills of Exchange
Renewal of a Bill
Renewal of a Bill
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 new bill, for a later due date, be drawn instead. If the drawer agrees, this is called renewal of the bill. Since the drawee has the use of the money for longer, the drawer is entitled to charge interest for the extension, usually added to the amount of the new bill.
In the books of the Drawer, renewal is recorded in three steps:
| Step | Particulars | Amount |
|---|---|---|
| 1. Cancel the old bill | Drawee's A/c ......Dr, To Bills Receivable A/c | Old bill amount |
| 2. Charge interest for the extension | Drawee's A/c ......Dr, To Interest A/c | Interest |
| 3. Record the new bill | Bills Receivable A/c ......Dr, To Drawee's A/c | Old amount + interest |
In the books of the Drawee (Acceptor), the mirror-image entries:
| Step | Particulars | Amount |
|---|---|---|
| 1. Cancel the old bill | Bills Payable A/c ......Dr, To Drawer's A/c | Old bill amount |
| 2. Interest payable for the extension | Interest A/c ......Dr, To Drawer's A/c | Interest |
| 3. Accept the new bill | Drawer's A/c ......Dr, To Bills Payable A/c | Old amount + interest |
Cancelling an existing bill before its due date and replacing it with a fresh bill for a later due date, at the drawee's request, usually with interest added fo …
A renewal in which the drawee pays part of the old bill's amount in cash immediately, and only the remaining balance (plus interest) is carried …