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Bills of exchange : Accounting Entries 2 Video Lecture - Commerce
FAQs on Bills of exchange : Accounting Entries 2 Video Lecture - Commerce
| 1. What is a bill of exchange in accounting? |  |
Ans. A bill of exchange in accounting is a written document that represents an agreement between two parties, typically a buyer and a seller. It serves as a legally binding promise to pay a specified amount of money at a predetermined future date.
| 2. How are bills of exchange recorded in accounting? | |
Ans. Bills of exchange are recorded by creating journal entries. When a bill of exchange is received, it is recorded as a debit to the accounts receivable or trade receivables account and a credit to the bills payable account. When the bill of exchange is paid, the bills payable account is debited, and the cash or bank account is credited.
| 3. What is the significance of bills of exchange in accounting? | |
Ans. Bills of exchange are significant in accounting as they facilitate transactions between parties by providing a written evidence of the debt owed. They help in managing cash flow by allowing for delayed payment and providing flexibility in payment terms.
| 4. How are bills of exchange different from promissory notes? | |
Ans. Bills of exchange and promissory notes are similar in that they both represent a promise to pay a specified amount of money. However, the key difference is that a bill of exchange involves three parties: the drawer, the drawee, and the payee, whereas a promissory note involves only two parties: the maker and the payee.
| 5. Are bills of exchange widely used in modern accounting practices? | |
Ans. While bills of exchange were more commonly used in the past, their usage has decreased over time. Modern accounting practices often rely on other payment methods such as electronic fund transfers, checks, and credit cards. However, bills of exchange may still be used in certain industries or international trade transactions where payment terms need to be formalized and guaranteed.
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Nov 16, 2024 Last updated |
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