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Accounting Test Time, Bill of Exchange, Practice Questions Video Lecture - Commerce
FAQs on Accounting Test Time, Bill of Exchange, Practice Questions Video Lecture - Commerce
| 1. What is the purpose of a bill of exchange in accounting? |  |
Ans. A bill of exchange is a legal document that serves as a written promise to pay a specific amount of money to a specified person or entity at a future date. In accounting, it is used as a financial instrument for credit transactions, facilitating the transfer of funds between parties. It ensures the creditor will receive payment from the debtor on a specified due date.
| 2. How does a bill of exchange work in accounting? | |
Ans. In accounting, a bill of exchange works by creating a written agreement between two parties, usually a debtor and a creditor. The debtor acknowledges their debt and signs the bill, promising to pay the specified amount on a future date. The creditor can then present the bill to the debtor's bank for payment on the due date or transfer it to another party for collection.
| 3. What are the key elements of a bill of exchange? | |
Ans. A bill of exchange typically includes several essential elements: the date of issuance, the parties involved (drawer, drawee, and payee), the amount payable, the due date, the place of payment, and the signature of the drawer. These elements ensure the bill's validity and enforceability as a legal document in financial transactions.
| 4. Can a bill of exchange be discounted or sold before the due date? | |
Ans. Yes, a bill of exchange can be discounted or sold before the due date. This process is known as "discounting" or "endorsing" the bill. The payee can approach a bank or a financial institution to discount the bill, receiving immediate cash in return. The bank or institution will deduct a certain percentage as a discount fee, considering the time value of money.
| 5. What are the accounting entries for a bill of exchange? | |
Ans. The accounting entries for a bill of exchange depend on the stage of the transaction. Initially, when the bill is issued, the drawer will record an increase in accounts receivable and a corresponding increase in accounts payable. When the bill is accepted by the drawee, the drawee will record an increase in accounts payable and a decrease in cash or bank balance. Finally, on the due date, the drawee will make the payment, resulting in a decrease in accounts payable and a decrease in cash or bank balance.
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Nov 16, 2024 Last updated |
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