Introduction

Goods can be bought or sold either for cash or on credit. In a cash deal the payment is

received at once, but in a credit deal the payment is put off to a future date, and the

seller has to rely on the buyer paying on the due date. To reduce the risk of delay or

default, businesses use a written instrument of credit through which the buyer formally

assures the seller that payment will be made on the agreed terms. In India such instruments

have been in use since ancient times and are traditionally known as hundies — written in

Indian languages and found in many varieties.

Some of the common hundies are:

• Shahjog Hundi — drawn by one merchant on another, directing the latter to pay the amount to a shah (a respectable, creditworthy person known in the market), who presents it to the drawee after due enquiry.
• Darshani Hundi — a hundi payable at sight; it must be presented for payment within a reasonable time of receipt. It is like a demand bill.
• Muddati (Miadi) Hundi — payable after a fixed period of time; it is like a time bill.

Other varieties include Nam-jog, Dhani-jog, Jawabee, Hokhami and Firman-jog hundies.

Today these instruments of credit are called bills of exchange and promissory notes.

A bill of exchange contains an unconditional order to pay a certain amount on an agreed

date, while a promissory note contains an unconditional promise to pay a certain sum on a

certain date. In India both are governed by the Indian Negotiable Instruments Act, 1881.

This CBSE Class 11 Accountancy chapter on bills of exchange explains what these NCERT-aligned

instruments are, the parties to them, how bills mature, and the complete accounting treatment

of drawing, discounting, endorsing, dishonouring, renewing and retiring a bill — with worked

illustrations and previous-year-style questions and answers.

After studying this chapter you will be able to: state the meaning of a bill of exchange

and a promissory note; distinguish between the two; state the advantages of a bill of

exchange; explain the terms involved in a bill transaction; record bill transactions in the

journal; record dishonour, retirement and renewal of a bill; describe the uses of the bills

receivable and bills payable books; and state the meaning and use of an accommodation bill.