Briefly explain the purpose and benefits of retiring a bill of exchange to the debtor and the creditor.
Briefly explain the purpose and benefits of retiring a bill of exchange to the debtor and the creditor.
There are instances when a bill of exchange is arranged to be retired before the due date by mutual understanding between the drawer and the drawee. This happens when the drawee of the bill has funds at his disposal and makes a request to the drawer or holder to accept the payment of the bill before its maturity.
It the holder agrees to do so, the bill is said to have been retired. The retiring of a bill draws a curtain on the bill transactions before the expiry of its normal term.
To encourage the retirement of the bill, the holder allows some discount called rebate on bills for the period between the date of retirement and maturity. The rebate is calculated at a certain rate of interest. The accounting treatment on the retirement of a bill is similar to the accounting treatment when a bill is honoured by the acceptor on the due date in the ordinary course. The only difference between the two relates to the granting of the rebate.
There are instances when a bill of exchange is arranged to be retired before the due date by mutual understanding between the drawer and the drawee. This happens when the drawee of the bill has funds at his disposal and makes a request to the drawer or holder to accept the payment of the bill before its maturity.
It the holder agrees to do so, the bill is said to have been retired. The retiring of a bill draws a curtain on the bill transactions before the expiry of its normal term.
To encourage the retirement of the bill, the holder allows some discount called rebate on bills for the period between the date of retirement and maturity. The rebate is calculated at a certain rate of interest. The accounting treatment on the retirement of a bill is similar to the accounting treatment when a bill is honoured by the acceptor on the due date in the ordinary course. The only difference between the two relates to the granting of the rebate.
