Bhanu accepted a bill for ₹10,000 drawn by Girish, payable 3 months after date. One month before the due date, Bhanu requested Girish to cancel the bill and draw a fresh one for 2 months, agreeing to pay interest at 12% p.a. for the extended period in cash immediately. Girish agr

Question

Bhanu accepted a bill for ₹10,000 drawn by Girish, payable 3 months after date. One month before the due date, Bhanu requested Girish to cancel the bill and draw a fresh one for 2 months, agreeing to pay interest at 12% p.a. for the extended period in cash immediately. Girish agreed. Journalise the renewal in the books of both parties.

Accepted Answer

Renewal happens before the original due date, when the drawee cannot pay and asks for extra time; it always involves three steps — cancelling the old bill, settling interest for the extra time granted, and drawing/accepting a fresh bill.

**Step 1 — Interest for the extension.** Interest = ₹10,000 × 12% p.a. × 2/12 = ₹200.

**In the books of Girish (Drawer)**

| Particulars | Debit (₹) | Credit (₹) |
|---|---|---|
| Bhanu's A/c Dr | 10,000 | |
| To Bills Receivable A/c | | 10,000 |
| (Being the original bill cancelled) | | |
| Cash A/c Dr | 200 | |
| To Interest A/c | | 200 |
| (Being interest for 2 months received in cash) | | |
| Bills Receivable A/c Dr | 10,000 | |
| To Bhanu's A/c | | 10,000 |
| (Being a fresh bill for 2 months drawn and accepted) | | |

**In the books of Bhanu (Drawee)**

| Particulars | Debit (₹) | Credit (₹) |
|---|---|---|
| Bills Payable A/c Dr | 10,000 | |
| To Girish's A/c | | 10,000 |
| (Being the original bill cancelled) | | |
| Interest A/c Dr | 200 | |
| To Cash A/c | | 200 |
| (Being interest for 2 months paid in cash) | | |
| Girish's A/c Dr | 10,000 | |
| To Bills Payable A/c | | 10,000 |
| (Being a fresh bill for 2 months accepted) | | | …

Particulars	Debit (₹)	Credit (₹)
Bhanu's A/c Dr	10,000
To Bills Receivable A/c		10,000
(Being the original bill cancelled)
Cash A/c Dr	200
To Interest A/c		200
(Being interest for 2 months received in cash)
Bills Receivable A/c Dr	10,000
To Bhanu's A/c		10,000
(Being a fresh bill for 2 months drawn and accepted)

Particulars	Debit (₹)	Credit (₹)
Bills Payable A/c Dr	10,000
To Girish's A/c		10,000
(Being the original bill cancelled)
Interest A/c Dr	200
To Cash A/c		200
(Being interest for 2 months paid in cash)
Girish's A/c Dr	10,000
To Bills Payable A/c		10,000
(Being a fresh bill for 2 months accepted)

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