Accountancy · Ch 8 — Accounting for Bills of Exchange

Renewal of the Bill

8.9

Sometimes the acceptor foresees that he will not be able to meet the bill on maturity and

asks the drawer to extend the time for payment. If the drawer agrees, the old bill is

cancelled and a fresh bill with new terms is drawn, accepted and delivered. This is

called renewal of the bill. Since the cancellation is mutually agreed, no noting is

required.

The drawee usually has to pay interest to the drawer for the extended period of credit.

The interest may be paid in cash or included in the amount of the new bill. Sometimes part of

the amount due is paid and the new bill is drawn only for the balance (plus interest).

The entries for a renewal are:

Transaction	Books of Drawer	Books of Drawee
Cancellation of the old bill	Drawee's A/c Dr.; To Bills Receivable A/c	Bills Payable A/c Dr.; To Drawer's A/c
Interest	Drawee's A/c Dr.; To Interest A/c	Interest A/c Dr.; To Drawer's A/c
New bill	Bills Receivable A/c Dr.; To Drawee's A/c	Drawer's A/c Dr.; To Bills Payable A/c

On February 1, 2017 Ravi sold goods to Mohan for ₹18,000. Mohan paid ₹3,000 immediately and

for the balance accepted a three-month bill drawn on him by Ravi. On the maturity date Mohan

asked Ravi to cancel the old bill and draw a new bill for two months, agreeing to pay

interest in cash @ 12% p.a. Ravi agreed, cancelled the old bill and drew a new one, which

Mohan met on maturity. (Interest on ₹15,000 for two months @ 12% p.a. = ₹300.)

Books of Ravi

Books of Mohan

Date	Particulars	L.F.	Debit (₹)	Credit (₹)
2017 Feb 1	Purchases A/c Dr.		18,000
	To Ravi's A/c			18,000