Bill of Exchange : Accounting Entries 1 Video Lecture - Commerce

Ans. A bill of exchange is a written document that serves as a legal instrument for payment. It is a binding agreement between two parties, known as the drawer and the drawee. The drawer instructs the drawee to pay a specific amount of money to a third party, known as the payee, on a specified date.

Ans. The accounting entries for a bill of exchange depend on the stage of the transaction. When the bill is initially issued by the drawer, the following entries are recorded: - Debit: Accounts Receivable (payee) - Credit: Bills Payable (drawer) When the bill is accepted by the drawee, the following entries are recorded: - Debit: Bills Receivable (drawer) - Credit: Bills Payable (drawee) Finally, when the bill is paid by the drawee, the following entries are recorded: - Debit: Bills Payable (drawee) - Credit: Cash/Bank

Ans. While both a bill of exchange and a promissory note are negotiable instruments used for payment, there are some key differences. A bill of exchange involves three parties, whereas a promissory note involves only two parties. The bill of exchange involves an order to pay, while a promissory note involves a promise to pay. Additionally, a bill of exchange can be transferred to another party through endorsement or delivery, while a promissory note cannot be transferred.

Ans. The maturity date of a bill of exchange is determined based on the agreed terms between the drawer and the drawee. It is usually a specified number of days after the date of acceptance. The maturity date is crucial because it represents the date by which the drawee must make the payment to the payee.

Ans. Using a bill of exchange offers several advantages in business transactions. Some of these advantages include: - Flexibility: A bill of exchange allows for deferred payment, providing flexibility to both the drawer and the drawee. - Credit facilitation: It helps in facilitating credit transactions, as it acts as evidence of a debt. - Security: The involvement of multiple parties and the legal nature of a bill of exchange provide added security to the payee. - Negotiability: It can be transferred to another party through endorsement or delivery, making it a negotiable instrument. - Record keeping: The written nature of a bill of exchange helps in maintaining proper documentation and record-keeping.