Bills Of Exchange

Period 1 : Introduction and Basic Terms of Bills of Exchange

 Objective: To understand the basic concepts and terms related to negotiable instruments.
 Content:
o Meaning of Negotiable Instruments:
 Instruments that guarantee the payment of a specific amount of money, either on
demand or at a set time.
o Types:
 Bills of Exchange : A bill of exchange is a written order used primarily in international
trade that directs a person or entity to pay a specified amount of money to another
person or entity at a predetermined date or on demand. It is a negotiable instrument
that represents a promise to pay a certain amount of money to the bearer or a
specified person.
 Promissory Notes : A Promissory Note is a written promise to pay a certain amount of
money to another person or entity at a specified time or on demand. It is a type of
negotiable instrument that represents a debt obligation, where one party (the maker)
promises to pay a certain amount of money to another party (the payee).
 Cheques: A cheque (also spelled check) is a written instruction from an account holder
to their bank to pay a specified amount of money to a named person or entity. It is a
type of negotiable instrument that allows the account holder to make payments to
others without the need for cash.
 Activities:
o Lecture and discussion on the definition and types of negotiable instruments.
o Display and explain specimen of a bill of exchange, promissory note, and cheque.
 Assessment:
o Short quiz on definitions and basic concepts.

Basic Terms of Bills of Exchange

 Objective: To understand the basic terms associated with bills of exchange.

 Content:
 Explanation of Basic Terms:

1. Drawer

The drawer is the party that creates or writes a bill of exchange. This party orders the drawee to pay a
specified sum of money to the payee or to the bearer of the bill.

2. Drawee

The drawee is the party upon whom the bill of exchange is drawn. This party is directed to pay the amount
stated in the bill of exchange. Once the drawee accepts the bill, they become the acceptor.

3. Payee

The payee is the party to whom the bill of exchange is payable. This is the individual or entity that will
receive the payment specified in the bill.

4. Endorser
The endorser is the person who signs the back of the bill of exchange to transfer it to another party. This act
is known as endorsement, and it signifies the transfer of rights from the endorser to the endorsee.

5. Endorsee

The endorsee is the person to whom the bill of exchange is endorsed. This party receives the rights to the bill
of exchange from the endorser.

6. Bill on Demand / Bill on Sight

A bill on demand (or bill on sight) is a type of bill of exchange that is payable immediately upon
presentation to the drawee. There is no specified date for payment other than the moment the bill is
presented.

7. Bill after Date

A bill after date is a bill of exchange that is payable a certain number of days or months after the date on
which it is drawn or issued.

8. Bill after Sight

A bill after sight is a bill of exchange that is payable a certain number of days or months after the date on
which it is presented to the drawee for acceptance.

9. Tenure of the Bill

The tenure of the bill refers to the time period from the date the bill is drawn until its maturity. It indicates
the duration for which the bill is valid before it needs to be paid.

10. Days of Grace

Days of grace refer to the extra days allowed (usually three) after the due date of a bill of exchange for the
payment to be made. This period is a customary extension granted to the drawee to settle the payment.

11. Due Date

The due date is the specific date on which the payment of a bill of exchange must be made. For bills payable
after a certain period, the due date is calculated by adding the tenure and any days of grace to the date the
bill is drawn or accepted.

 Activities:
o Lecture and discussion on the basic terms.
o Examples and scenarios to illustrate each term.
 Assessment:
o Class participation and short written exercise on the terms.
 Period 2 and 3: Advanced Terms and Concepts

Endorsement, Discounting, and Collection

 Objective: To understand the concepts of endorsement, discounting, and collection of bills.

 Content:
o Endorsement:
 The process of transferring the rights of a bill to another party.
o Discounting of Bills:
 Selling the bill to a bank before its maturity at a discounted rate.
o Bill Sent for Collection:
 Sending the bill to the bank for collection on its due date.
 Activities:
o Lecture and discussion on endorsement, discounting, and collection.
o Practical examples and scenarios.
 Assessment:
o Class discussion and Q&A session.

Dishonour, Noting, and Renewal of Bills

 Objective: To understand the process and implications of dishonour, noting, and renewal of bills.
 Content:
o Dishonour of a Bill:
 When the drawee fails to accept or pay the bill.
o Noting Charges:
 Fees charged by a notary public for noting the dishonour.
o Notary Public:
 An official authorized to note the dishonour.
o Renewal of a Bill:
 Extending the due date of the bill by mutual agreement.
 Activities:
o Lecture and discussion on dishonour, noting, and renewal.
o Real-life examples and case studies.
 Assessment:
o Short written exercise on dishonour and renewal processes.
 Period 4 to 6: Journal Entries in the Books of the Drawer

Journal Entry for Bills of Exchange

Drawer’s Books

Amount Amount
Date Particulars
(Dr) (Cr)

1. The issue of bill Bills Receivable A/c Dr. xx

To Drawee’s A/c xx

(Being bill was drawn and accepted)

2. The Bill is retained

No entry
until maturity

a. In case of honor Cash/Bank A/c Dr. xx

To Bills Receivable A/c xx

(Being bill retained till maturity and payment

received)

b. In case of dishonor Drawee’s A/c Dr. xx

To Bills Receivable A/c xx

 (Being bill retained till maturity and
dishonored)

3. The bill is discounted with the

Bank A/c (amount actually received) Dr. xx
bank

Discount A/c (amount of discount) Dr. xx

To Bills Receivable A/c xx

(Being bill discounted with the bank)

a. In the case of honor No entry

b. In case of dishonor Drawee’s A/c Dr. xx

To Bank A/c xx

(Being discounted bill dishonored)

4. The bill is endorsed Creditor’s/ Endorsee’s A/c Dr. xx

To Bills Receivable A/c xx

(Being bill endorsed in favor of creditor)

 a. In case of honor No entry

b. In case of dishonor Drawee’s A/c Dr. xx

To Creditor’s/ Endorsee’s A/c xx

(Being bill endorsed dishonored)

Drawee’s or the Payer’s Books

Amount
Date Particulars Amount (Cr)
(Dr)

1. The issue of bill Drawer’s A/c Dr. xx

To Bills Payable A/c xx

(Being bill was drawn and

accepted)

2. The Bill is retained until

No entry
maturity

a. In case of honor Bills Payable A/c Dr. xx

To Cash/ Bank A/c xx

 (Being payment made against the
bill)

b. In case of dishonor Bills Payable A/c Dr. xx

To Drawer’s A/c xx

(Being bill dishonored)

3. The bill is discounted with the

No entry
bank

Bills Payable A/c Dr. xx

To Cash/ Bank A/c xx

(Being payment made against the

bill)

a. In case of honor Bills Payable A/c Dr. xx

b. In case of dishonor To Drawer’s A/c xx

(Being bill dishonored)

No entry
4. The bill is endorsed Bills Payable A/c Dr. xx

To Cash/ Bank A/c xx

(Being payment made against the

bill)

a. In case of honor Bills Payable A/c Dr. xx

b. In case of dishonor To Drawer’s A/c xx

(Being bill dishonored)

Holder/endorsee’s Books

Amount Amount
Date Particulars
(Dr.) (Cr.)

1. Endorsed to a
Bills Receivable A/c Dr. xx
creditor

To Drawer’s / Debtor’s A/c xx

(Being endorsed bill received)

a. In case of honor Cash/ Bank A/c Dr. xx

 To Bills Receivable A/c xx

(Being payment received against the bill)

b. In case of
Drawer’s A/c Dr. xx
dishonor

To Bills Receivable A/c xx

(Being bill dishonored)

Practical Problems - Ledger Accounts

Period 7 to 10 : Ledger Accounts in the Books of the Drawer

 Objective: To prepare ledger accounts for bills of exchange in the books of the drawer.
  Content:
o Ledger Accounts:
 Bills Receivable Account
 Endorser’s Account
 Bank Account
 Debtor’s Account

 Activities:
o Lecture and practice problems on preparing ledger accounts.
o Step-by-step walkthrough of each type of account.
 Assessment:
o Practice problems and in-class exercises.

Class Work :
Home Work :