CA Foundation Exam > CA Foundation Questions > The accommodation bill is drawn_______a)To fi...
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The accommodation bill is drawn_______
- a)To finance actual purchase or sale of goods
- b)To facilitate trade transmission
- c)When both parties are in need of funds
- d)None of the above
Correct answer is option 'C'. Can you explain this answer?
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The accommodation bill is drawn_______a)To finance actual purchase or ...
Accommodation bill is a type of bill of exchange that is drawn when both parties are in need of funds. Let us understand this concept in detail:
Meaning of Accommodation Bill:
An accommodation bill is a type of bill of exchange that is drawn not for financing the actual purchase or sale of goods or services, but to facilitate the transmission of funds from one party to another. In other words, it is a financial instrument that helps in raising funds for a short term by way of discounting the bill with a bank.
Parties Involved:
There are three parties involved in an accommodation bill:
1. Drawer: The person who draws the bill.
2. Drawee: The person who is required to make the payment.
3. Payee: The person to whom the payment is made.
When is an Accommodation Bill Drawn?
An accommodation bill is drawn when both parties are in need of funds. For example, if A needs funds but does not have any collateral to offer to the bank, he can approach B. B can then draw an accommodation bill and give it to A. A can then discount the bill with a bank and get the funds he requires. In this case, B is acting as a guarantor for A and is liable to pay the bill if A fails to do so.
Features of an Accommodation Bill:
1. It is drawn to raise funds for a short term.
2. It is not drawn for financing the actual purchase or sale of goods or services.
3. It is drawn when both parties are in need of funds.
4. It involves three parties - the drawer, drawee and payee.
5. It is a financial instrument that helps in raising funds by way of discounting the bill with a bank.
Conclusion:
Thus, an accommodation bill is a financial instrument that helps in raising funds for a short term when both parties are in need of funds. It is drawn not for financing the actual purchase or sale of goods or services, but to facilitate the transmission of funds from one party to another.
Meaning of Accommodation Bill:
An accommodation bill is a type of bill of exchange that is drawn not for financing the actual purchase or sale of goods or services, but to facilitate the transmission of funds from one party to another. In other words, it is a financial instrument that helps in raising funds for a short term by way of discounting the bill with a bank.
Parties Involved:
There are three parties involved in an accommodation bill:
1. Drawer: The person who draws the bill.
2. Drawee: The person who is required to make the payment.
3. Payee: The person to whom the payment is made.
When is an Accommodation Bill Drawn?
An accommodation bill is drawn when both parties are in need of funds. For example, if A needs funds but does not have any collateral to offer to the bank, he can approach B. B can then draw an accommodation bill and give it to A. A can then discount the bill with a bank and get the funds he requires. In this case, B is acting as a guarantor for A and is liable to pay the bill if A fails to do so.
Features of an Accommodation Bill:
1. It is drawn to raise funds for a short term.
2. It is not drawn for financing the actual purchase or sale of goods or services.
3. It is drawn when both parties are in need of funds.
4. It involves three parties - the drawer, drawee and payee.
5. It is a financial instrument that helps in raising funds by way of discounting the bill with a bank.
Conclusion:
Thus, an accommodation bill is a financial instrument that helps in raising funds for a short term when both parties are in need of funds. It is drawn not for financing the actual purchase or sale of goods or services, but to facilitate the transmission of funds from one party to another.
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