Accommodation Bills

So far, every bill discussed has been a trade bill — a bill drawn and accepted for a

genuine trade transaction (a real sale or purchase of goods on credit). An accommodation bill is different: it is a bill drawn and accepted not for a trade debt but purely to

help one or more parties raise funds for a short period. Because it does not arise from a

real sale, it is sometimes called a kite or a bill drawn "for mutual accommodation".

(Accommodation bills are named in this chapter's Learning Objectives and are tested in the

practice questions, though this edition prints no separate section for them.)

How it works. One person draws a bill on another, who accepts it purely as a favour, with

no goods changing hands. The drawer discounts the accepted bill with a bank and uses the money

for his needs. Before maturity he is expected to remit the amount to the acceptor (or provide

the funds) so that the acceptor can meet the bill, keeping the acceptor free of any real

liability. If the bill is drawn for the benefit of both parties, they share the proceeds

of discounting in an agreed ratio and each contributes his share of the amount on the due

date.

Difference from a trade bill. A trade bill represents a genuine debt and is supported by

consideration (goods sold); an accommodation bill has no such consideration and is only a …