Bill of Exchange

Definition, Parties to a Bill, promissory note.,Accounting Entries Example.

1. Bill of exchange definition
Bill of exchange
As per the Indian Negotiable Instruments Act.
1881
A Bill, of Exchange is an instrument in writing
containing an unconditional order, signed by the
maker, directing a certain person to pay a certain
sum of money only to, or to the order of, a certain
person or to the bearer of the instrument.

2. CHARACTERISTICS OF BILL OF
EXCHANGE
1. A bill must be in writing. So an oral order
cannot be called a bill.
2. The bill must be addressed to a specific
person.
3. The bill must be contain an order to pay
money, not a request.
4. The amount shown in the bill must be definite
and clear.
5. The date of writing the bill must be clear in the
bill.
6. The duration of the bill must be definite.

3. PARTIES TO A BILL OF
EXCHANGE
Normally there are three parties to a bill of
exchange .
1. Drawer of the bill.
2. Acceptor \Drawee \Payer of the bill.
3. Payee of the bill.

4. DETAIL OF A BILL OF
EXCHANGE
1. AMOUNT
2. DATE
3. PEROID
4. SIGNATURE
5. REVENEU STAMP

5. TYPES OF BILL EXCHANGE
1.Bill payable immediately on demand or bill at
sight
2. bill payable after a stipulated period or bill after
time

6. USEFULNESS AND
ADVANTAGES OF A BILL OF
ECHANGE
A definite date can be fixed through a bill for
receivingmoney from a debtor.
A bill can be used as a written proof of the debt.
A bill is a simple and useful instrument for the
settlement of accounts
A bill is very useful in foreign trade.
Businessmen can ease financial difficulties of
one another by drawing accommodation bill on
one another.

7. Example
Niyati sold goods of Rs 8000 on credit to Nidhi on
5-5-03. On the same day, Niyati drew a bill on
Nidhi which was accepted and returned by her.
On 10-5-03 Niyati endorsed this bill in favour of
crediter Ronak.The amount of the bill was paid
on the maturity date. Pass journal entires in the
books of Niyati and Nidhi.

8. Journal of Niyati
DateParticulars L
F
Debit
Rs
Credit
Rs
May
5,'03
Nidhi's A/c Dr
To Sales A/c
( Being goods sold)
8000
8000
May
5,'03
Bills Receivable A/c Dr
To Nidhi's A/c
( Being bill accepted by Nidhi )
8000
8000
May
10,'03
Ronak's A/c Dr
To Bills Receivable A/c
( Being bill endorsed to Ronak)
8000
8000
June
7,'03
No Entry

9. Journal of Nidhi
Date Particulars L
R
Debit
Rs
Credit
Rs
May
5,'03
Purchase A/c Dr
To Niyati's A/c
(Being purchase of goods )
8000
8000
May
5,'03
Niyati's A/c Dr
To Bills Payable A/c
(Being bill accepted )
8000
8000
May
10,'03
No Entry
June
7,'03
Bills Payable A/c Dr
To Bank/Cash A/c
( Being amount of the bill paid)
8000
8000

10. CHARACTERISTICS OF A
PROMISSORY NOTE
A promissory note must be in writing so an oral
promise cannot be called a promissory note.
The promissory note must contain a promise to
pay money (certain amount ).
The promise made in the promissory note must
be unconditional.
The date of making the promissory note must be
cleary stated.
There are two parties to a promissory note,
Maker and Payee.

11. SPECIMEN OF A PROMISSORY
NOTE
Manekchowk
Ahmedabad
Date-22/12/201
0 1000
I promise to pay Rupees one thousand only to Mr. Pathan Aman or
as per order after two months from today, for value received.
Revenue
Stamp
Signature
FAISAL
Rs

12. DIFFERENCE BETWEEN BILL
OF EXCHANGE AND
PROMISSORY NOTES
Points Bill of exchange Promissory Notes
1. Order or
Promise
A bill of exchange is an
unconditional order to pay
money .
A promissory note is an
Unconditional promiseto pay
money.
2. Who Draws
on whom
A bill is drawn by a
creditor on his debtor.
A promissory note is made by
a debtor and sent to his creditor.
3. Need for
Acceptance
A bill does not become
o[erative unless it is
accepted by the person
on whom it is drawn.
There is no need for acceptance
Of a promissory note as it is made
By the debtor himself.
4.Parties There are three parties to
a bill-drawer of the bill,
acceptor of bill and
receiver of money.
There are two parties to
promissory note-maker of the note
and receiver of the money.

13. PREPARED BY:
AJMERI FAISAL
GUIDE: Mr.JOSEPH JOSEPH
Thanks