Accountancy · Ch 8 — Accounting for Bills of Exchange

Retiring of the Bill

8.10

Sometimes a bill is arranged to be retired before the due date by mutual understanding

between the drawer and the drawee. This happens when the drawee has funds available and asks

the drawer/holder to accept payment before maturity. If the holder agrees, the bill is said

to have been retired.

To encourage early retirement, the holder allows a small discount called a rebate (or

rebate on bills) for the period between the date of retirement and the date of maturity.

The rebate is calculated at an agreed rate of interest. The accounting treatment is the same

as for a bill honoured on the due date, except for the rebate:

Books	Entry on retirement
Books of the holder	Cash A/c Dr. and Rebate on Bills A/c Dr.; To Bills Receivable A/c
Books of the drawee	Bills Payable A/c Dr.; To Cash A/c and To Rebate on Bills A/c

Amit sold goods worth ₹10,000 to Babli on January 1, 2015 and immediately drew a three-month

bill on her for the same amount, which Babli accepted. On March 4, 2017 Babli retired her

acceptance under a rebate of 6% per annum. (Rebate for the unexpired one month on ₹10,000 @

6% p.a. = ₹50.)

Books of Amit

The above entries are posted to the ledger as follows.

Bills Receivable Account (Books of Amit)

Books of Babli

Date	Particulars	Debit (₹)	Credit (₹)
2017 Jan 1	Purchases A/c Dr.	10,000
	To Amit's A/c		10,000
Jan 1	Amit's A/c Dr.	10,000
	To Bills Payable A/c		10,000