Question

What is retirement of a bill of exchange?

Answer 1

When a holder receives the amount of a bill before the maturity date on the request of the acceptor, then it is called retirement of the bill of exchange. Holder of the bill may give discount for such earlier payment. This discount is termed as ‘rebate’.

Entry in the books of the holder of the bill

Cash A/c		Dr.
Rebate A/c		Dr.
	To Bills Receivable A/c
(Bill amount received before maturity and rebate allowed)

Entry in the books of the acceptor (drawee) of the bill

Bills Payable A/c		Dr.
	To Cash A/c
	To Rebate A/c
(Bill paid and received rebate for early payment)