What is Bill Of Exchange? Features, Examples

(a) Term of Bill or Period of Bill

(B) Due Date

(C) Days of Grace

(D) Date of Maturity

(a) Discounting of Bill

(B) Endorsement of Bill; and

(C) Bill Sent for Collection.

• It means encashment of bill before the date of its maturity.
• The bank deducts its charges from the bill.

• Endorsement means the transfer of bill or promissory note to another person.
• It is transferred on account of the settlement of debts and dues.

• When a bill is sent to the bank for collection with instruction, that it will be retained till the maturity date.
• Bill will be realised on its due date. It is known as ‘Bill sent for collection’.

(a) Dishonour of Bill;

(B) Noting of a Bill; and

(C) Nothing Charges.

• When payment is not made by the acceptor of the bill on its due date. It is known as ‘Dishonor of Bill’.
• Non-payment may be due to insufficient balance or insolvency.

• On dishonour of a bill, when this fact is brought to the notice of a Notary Public, it is termed as ‘Noting of a bill’.
• Notary public charges to record or take a noting of dishonour.

• It is the fee paid to the Notary Public for noting of dishonour of a bill.

• When the Drawee pays the bill before its due date, It is termed as the retirement of a bill.
• It happens with the mutual understanding between the Drawer and the Drawee.
• To encourage Retiring of the bill, the holder allows some discount called Rebate on the bill amount from the date of retiring the bill to the maturity.

• When the holder of a bill is not in a position to meet the bill on its due date, Drawee approaches the Drawer with a request of extension of time for payment.
• If Drawer agrees, the old bill is cancelled, and a fresh bill with the new terms of payment is drawn and duly accepted and delivered. This is called Renewal of the Bill.

(a) When the Period of Bill is Given in Months

(b) When the Period of Bill is Given in Days

(c) When Maturity Date Falls on a Public Holiday

(d) When the Maturity Date Has Been Declared as Emergency Holiday

• In this case, the maturity date is calculated according to calendar months.
• Ignoring the number of days in a month.
• 3 days of the Grace period are added.

For example: – if a bill dated 4^th May, 2017 is payable 3 months after date:-

= Then the maturity date will be 4^th August 2017 + 3 Days of Grace = 7th August 2017.

• The maturity date will be calculated in days,
• This excludes the date of transaction but includes the date of payment.
• 3 days of the Grace period are added in this case also.
• For example: -if a bill dated 5^th June 2017 is payable after 65 days, then the maturity date will be:-

=25 Days of June + 31 Days of July + 9 Days of August + 3 Days of Grace=12^th August 2017

• If the due date of the bill is on the national holiday
• Then the maturity day of the bill shall be the preceding business day.
• Example:-If due date of the bill falls on 26^th January (Republic Day), then its due date will be 25^th January.
• If the due date is 15^th August (Independence Day), then the due date will be 14^th August.

• If the due date of the bill is declared as an emergency holiday,
• Then the due date of the bill shall be after 1 day from the date of maturity.
• Example:- if the due date of a bill is 25^th July and it is declared as an emergency holiday, then the due date will be 26^th July.

(a) Maturity Date in Case of ‘bill at Sight’ or ‘instrument Payable on Demand’.

(B) Maturity Date in Case of ‘bill After Date’.

(C) Maturity Date in Case of ‘bill After Sight’.

• The bill at sight becomes due for payment, as soon as it is presented for payment.
• In case of ‘Instrument payable on demand’, No time for payment is mentioned.
• Such Bills are not entitled to the Days of Grace. `

• In the case of ‘Bill after date,’ the time for payment is mentioned.
• Three Days of Grace is allowed on such a bill.

• In case of ‘Bill after Sight, payable at a fixed period ‘after sight’.
• The period begins from the date of accepting the bill.
• Three Days of Grace is allowed on such a bill.

1. Bill can be Retained till the date of Maturity
2. Bill can be discounted with the bank
3. Bill can be Endorsed or Negotiated in favour of Creditor
4. Bill can be sent to Bank for collection

• For the person who draws the bill of exchange and is entitled to receive its payment is known as Bill Receivable.
• The drawer of the bill will show B/R on the assets side of the Balance Sheet.

• For the person who accepts the bill, and is liable to make its payment, is known as Bills Payable.
• The Drawee of the bill will show B/P on the liabilities side of the Balance Sheet.

• Discounting of the bill means encashing the bill before the date of its maturity.
• Bank charges an amount (Discounting charges) from the bill amount.

The journal entries are as follows:

In case of  Drawers Books

Drawee’s A/c  Dr.
To Bank A/c
(Being discounted bill dishonoured)

In case of Drawee’s Books

To Drawer’s A/c
(Being bill dishonoured)

• When the acceptor is not in his capacity to pay his bill on the due date.
• He may request the drawer of the bill to cancel the original bill and draw a new Bill in place of the old Bill.
• If drawer agrees and a new bill is drawn, it is known as Renewal of a Bill.

• A bill is said to be dishonoured when the drawee fails to make the payment on the date of maturity.
• The bill may get dishonoured when the drawee does not have sufficient funds to pay the bill or he becomes insolvent.
• In this situation, the liability of the acceptor is restored.

• Accommodation bill is drawn and accepted for the purpose of mutual help.
• It is accepted by the drawee to accommodate the drawer.
• Hence, the drawee is called the ‘Accommodating Party’ and the drawer is called the ‘Accommodation Party’.
• Accounting entries are made for accommodation bills in the same manner as for other bills.