Question

On 1st May, 2019 Merchant & Co. sold goods to AB & Co. valued at ₹ 500 and drew upon them a bill at 3 months for the amount. AB & Co. accepted the draft on presentation. When the bill was about to mature. AB & Co. expressed their inability to meet it, and offered to pay Merchant & Co. ₹ 200 in cash and to accept a fresh bill for the balance plus interest at 6% p.a. for 3 months. Merchant & Co. agreed to the proposal and bill was renewed. On maturity, the bill was duly met.
Make the entries in the books of both the parties to record the above transactions.

Answer 1

Books of Merchant & Co.
Journal
Date	Particulars		L.F.	Debit Amount (₹)	Credit Amount (₹)
2019
May 01	AB & Co	Dr.		500
	To Sales A/c				500
	(Goods were sold to AB & Co)
May 01	Bills Receivable A/c	Dr.		500
	To AB & Co				500
	(AB & Co’s acceptance was received)
Aug.04	AB & Co	Dr.		500
	To Bills Receivable A/c				500
	(AB & Co’s acceptance was cancelled)
Aug.04	Cash A/c	Dr.		200
	To AB & Co				200
	(Cash received from AB & Co)
Aug.04	AB & Co			4.50
	To Interest A/c				4.50
	(Interest-due from AB & Co at 6% p.a. for 3 months)
	Working Note: 300 × 6% × 3/12 = Rs 4.50
Aug.04	Bills Receivable A/c	Dr.		304.50
	To AB & Co				304.50
	(AB & Co’s acceptance was received including the interest for 3 months)
				304.50
Nov.07	Cash A/c	Dr.			304.50
	To Bills Receivable A/c
	(Payment received on maturity the bill)

Books of AB & Co
Journal
Date	Particulars		L.F.	Debit Amount (₹)	Credit Amount (₹)
2019
May 01	Purchases A/c	Dr.		500
	To Merchant & Co				500
	(Goods were bought from Merchant & Co)
May 01	Merchant & Co	Dr.		500
	To Bills Payable A/c				500
	(Bill drawn by Merchant & Co was accepted)
Aug.04	Bills Payable A/c	Dr.		500
	To Merchant & Co				500
	(Bill got cancelled)
Aug.04	Merchant & Co	Dr.		200
	To Cash A/c				200
	(Cash paid to Merchant & Co)
Aug.04	Interest A/c	Dr.		4.50
	To Merchant & Co				4.50
	(Interest due to Merchant & Co at 6% p.a. for 3 months on the amount due)
Aug.04	Merchant & Co	Dr.		304.50
	To Bill Payable A/c				304.50
	(New bill drawn by Merchant & Co was accepted)
Nov.07	Bills Payable A/c	Dr.		304.50
	To Cash A/c				304.50
	(Cash paid for honouring the bill)