Concept of Bills of Exchange Video Lecture | Accountancy Class 11 - Commerce

the concept before we understand the
concept of a bill of exchange let us
take an example and see when a bill of
exchange is used suppose x sells goods
to buy for rupees 20,000 ok but why is
not in a position to make payment
immediately why wants to take the goods
for three months of credit let us just
assume that X is not very comfortable
with this situation maybe Y is a new
customer or X is not sure whether Y will
be in a position to pay after three
months or not
so what X does is X takes a piece of
paper and on the piece of paper X writes
he orders actually X rights Y will pay X
rupees 20,000 after three months he
signs it he actually puts a stamp to it
takes it to mr. Y and asked mr. Y
whether he is willing to accept this
document he will have to Y will have to
sign and accept this particular piece of
pain now this piece of paper becomes a
bill of exchange it is a valid legal
document which is a proof for X the
three months from now Y will pay two
piece twenty thousand to him with this Y
is happy because Y gets the goods on
credit X is happy because X is assured
of his payment after three months the
bill of exchange is a valid legal
document governed by the negotiable
instruments Act so if required if there
is the bill is not honored or if money
is not paid by y based on this bill
there is evidence X can go to court X
can more or less be assured that he will
get his
whether its background now let us first
look at a specimen of a bill of exchange
a format of a bill of exchange this is a
specimen of a bill of exchange now what
does it say there is an amount mention
here the bill is dated there is a
particular date to the bill and the bill
says three months after paid to Sohan or
order the sum of rupees one lakh only so
there is the amount here again for value
received it is addressed to moon it is
accepted by Mohan
it was prepared by Sohan so Sohan is the
broad and the maker of this bill and
what the Zohan do so Han has is
instructing Mohan to pay him or order
order would mean any person that so Han
would endorse to or direct to be paid
there is the date is specific then date
of the bill is first gel and it is three
months after so the date of payment is
also certain three months after tsofen
has asked moment to pay a sum of rupees
one lakh if you notice the document is
also stamped this is a valid legal
document so health has instructed moment
to pay so her or order or order would
mean any person that so Han may instruct
to be paid for example Solon may want to
give it to her he may want to give it to
X he may want to give it to why he may
be want to give it to Z so the person
ought to soften or order would mean so
hot or any person that's so on would
warn he would sign behind the bill of
Street and transfer it to somebody else
amount is clear
death is clear there is a drawer and an
acceptor I repeat the stamp makes it a
valid legal document let us know based
on this information let us try to define
a bill of exchange let us say so one has
sold goods worth okay
rupees one lakh two more on 1st January
so so her has sold goods of rupees one
lakh two more on 1st January and Mohan
has assured him payment after three
months so sohan prepares a bill of
exchange the bill of exchange would look
something like this
so this is a piece of paper so Han has
made this paper it is signed by so hard
so Han is the drawer the maker of this
particular piece of paper what does it
say it has an amount here it has the
date here that is the date on which he
is making the bill here and what does it
say it says three months after pay - so
Han or order the sum of rupees one lakh
only for value received so this is three
months after date is specified pay to
whom pay - so hot or order or order
would mean any person that soweth would
want payment to be made so if so han
later on wants to pay some creditor of
his he can transfer this bill
that creditor if his signature is there
behind the bill saying that he has
transferred or endorsed the bill to the
creditor Mahad would have to pay that
particular creditor after three months
instead of paying so on so three months
after paid to Sohan or order the sum of
rupees one lakh amount is clear for
value received addressed to Mohan
therefore a bill of exchange it is an
order it is a writing in writing an
order in writing made by the drawer
asking somebody asking a person to pay a
certain sum of money on a certain date
this is signed by sohail and a revenue
stamp is affixed on this bill of
exchange making this a legal document a
bill of exchange is a legal document
covered by the negotiable instruments
act 1881 when this bill is made by sohan
it is actually called a draft it becomes
a valid bill of exchange
only when sohail takes it the Mohan and
Mohan signs on this and accepts it this
is how a bill of exchange is made signed
and accepted having understood this let
us try to define a bill of exchange what
is a bill of exchange as per the NI Act
a bill of exchange has been defined as a
financial instrument in writing
containing an unconditional order
signed and stamped by the maker made on
a certain date directing a person to pay
a certain sum of money to a certain
person or to the order of the certain
person the bill must be accepted by the
person on whom it is made so what is a
bill of exchange a bill of exchange is
our instrument a financial instrument it
has a value it is a financial instrument
in writing an oral transaction and oral
a conversation and oral agreement will
not constitute a bill of exchange so it
is a financial instrument in writing
made on a certain date containing an
unconditional order so there should be
in order to pay it should not be that
when y gets money he will pay if he
likes the goods he will pay no such
condition it is an unconditional order a
bill of exchange must contain an
unconditional order it is signed by the
maker and normally a legal stamp a
revenue stamp is affixed on it making it
a legal document the amount must be
specific it must be certain it is not a
vague amount it is not subject to
anything and then the amount must be
certain it must be payable to a certain
person or to the order of a certain
person what is the order of a certain
person like mentioned before the order
of a certain person would mean if
suppose the bill is made payable to so
hard so handmade direct that this amount
be paid to mr. Aaron or mr. X or mr. Y
or mr. Zed
in which case payment in which case the
bill will be presented for payment by
our own or X or Y or Z and Mon would
have to make the payment to the person
consult a bill is either may be payable
on demand this is called a billet site
sometimes if the specific date it is not
after the expiry of a certain date it is
called a demand bill or a billet site or
it is payable after the expiry of a
fixed period of time the bill to make it
completely valid bill of exchange must
be accepted must be accepted by the
debtor by the person who is being
ordered who is being instructed to make
the payment before its acceptance it is
called a draft it is only a draft and it
becomes a valid bill of exchange only
when y accepts it or more and accepts it