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Accounting For Bill Of Exchange-Bills Receivable(Part2)

In Part 1, the common terms used in Bill Of Exchange have been explained.

This article deals with the accounting for Bills Receivable which are defined as:

Bills Receivable
As explained in Part 1,  1.     The bill of exchange after it is accepted is known as bill receivable to the drawer and bill payable to the acceptor           [ When a drawee accepts the bill and signs he/she  is known as the acceptor. The acceptor is primarily liable on a bill to the drawer so long as the drawer retains the bill. When the bill is negotiated and transferred to a payee, the drawer than become liable on the bill as well as the acceptor.] 

Below shows the accounting entries of Bills Receivable and an illustration on how to pick up the Bills Receivable in the Ledger Accounts.
Accounting Entries For Bills Receivable

  DR CR
When the bill of exchange is received from the customer:    
Bills Receivable account XX  
Customer’s account   XX
     
Bill paid on maturity by customer:    
Bank account XX  
Bills Receivable account   XX
     
Where the bill has been discounted:    
Discount Charges account XX  
Bills Receivable account   XX
     
Bill endorsed over to creditor    
Creditor’s account XX  
Bills Receivable account   XX
     
Face value of bills dishonored where it has not been discounted or endorsed:    
Customer’s account XX  
Bills Receivable account   XX
     
Face value of bills dishonored where It has been discounted with a bank:    
Customer’s account XX  
Bank account   XX
     
Face value of bills dishonored where it has been endorsed over to a creditor:    
Customer’s account XX  
Creditor’s account   XX
     
Face value of Bill returned:    
Customer’s account XX  
Bills Receivable account   XX
     
Interest charged to customer as a result of returning old bill and issuing a new one:    
Customer’s account XX  
Interest Receivable account   XX
     
Record with new bill amount being face value of old one plus interest charged    
Bills Receivable account XX  
Customer’s account   XX

Illustration: On 1/1/200X, A sold goods to B for $50,000 and drew a bill on B at four months in settlement. B accepted the bill. On 30/1/0X, A discounted the bill with the bank at 6% per annum. At maturity, B failed to meet his bill and the holder had recourse against A. On 1/5/0X, A drew and B accepted a new bill at three months for the amount of the original bill, plus interest at 12% per annum. 

Question:  Show the ledger accounts in A’s books. 

Solution:  In A’s Books: 

                            Bills Receivable Account

    $     $
1/1 B’s account 50,000 30/1 Bank-bill discounted 49,250
1/5 B’s account 51,500   Discount charges a/c 750

                                   B’s Account

    $     $
1/1 Sales a/c 50,000 1/1 Bills Receivable a/c 50,000
30/4 Bank a/c 50,000 1/5 Bills Receivable a/c 51,150
1/5 Interest Receivable a/c 1,500      

                                   Bank Account

    $     $
30/1 Bills Receivable 49,250 30/4 B’s account -bill dishonored 50,000

                         Discount Charges Account

    $     $
30/1 B’s account 750      

                           Interest Receivable Account

          $
      1/5 B’s a/c 1,500

See next article Part 3 on Accounting for Bills Payable

This entry was posted on Monday, October 29th, 2007 at 8:33 am and is filed under Bill Of Exchange. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

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