Test: Bill Of Exchange - 2 - Commerce MCQ

If acceptance received from Ram is endorsed in favor of Salem and it is dishonored, the following accounts will be debited:
1. Ram:
- The account of Ram should be debited because he is the one who has dishonored the acceptance.
2. Trade receivable:
- Trade receivable refers to the amount owed by Salem for the goods or services provided.
- Since the acceptance was endorsed in favor of Salem, the dishonor of the acceptance affects the trade receivable account.
Summary:
- When the acceptance received from Ram is endorsed in favor of Salem and it is dishonored, both Ram and the trade receivable account should be debited.

The origin of bill receivable book is the journal.

Explanation:

The bill receivable book is a subsidiary book that records all the bills receivable transactions of a business. It is used to keep track of the bills that are to be received by the business in the future. The origin of the bill receivable book can be traced back to the journal, which is the book of original entry.
Here is a detailed explanation of the origin of the bill receivable book:
1. Journal: The journal is the first book in which all the business transactions are recorded in the order of occurrence. It is the book of original entry where all the financial transactions are initially recorded.
2. Bill Receivable: When a business receives a bill from a customer, it is recorded in the journal as a bill receivable transaction. The details of the bill, such as the amount, due date, and the party from whom it is received, are recorded in the journal entry.
3. Subsidiary Books: Subsidiary books are specialized books used to record specific types of transactions. The bill receivable book is a subsidiary book that is used to record all the bills receivable transactions.
4. Origin: The bill receivable book is derived from the journal. The relevant information from the journal entry, such as the bill number, date, party name, and amount, is transferred to the bill receivable book.
5. Recording: In the bill receivable book, each bill is recorded separately with its details, including the bill number, date, party name, due date, amount, and any other necessary information. This helps in keeping track of all the bills receivable and managing the collection process efficiently.
In conclusion, the origin of the bill receivable book is the journal, where the initial entry of the bill receivable transaction is recorded. The relevant information is then transferred to the bill receivable book for further tracking and management.

To answer this question, we need to understand the relationship between the payment of interest charges and the amount of the new bill. Here's a detailed explanation:
1. Understanding interest charges:
- Interest charges are the additional amount of money that a borrower has to pay for using someone else's money.
- It is usually calculated as a percentage of the principal amount (the initial amount borrowed).
2. The impact of not paying interest charges:
- If the acceptor does not pay the interest charges, it means that the interest amount is not included in the payment.
- As a result, the amount of the new bill will increase because the unpaid interest charges will be added to the principal amount of the bill.
3. The relationship between the new bill and interest:
- When interest charges are not paid, the new bill will be higher than the original bill amount.
- This is because the unpaid interest charges are added to the principal amount, increasing the total amount due.
4. Answer:
- Based on the above explanation, the correct answer is option A: Increased.
- When the acceptor does not pay the interest charges, the amount of the new bill will increase as the unpaid interest charges are added to the principal amount.

Bill Receivable is an Asset
- Definition: A bill receivable refers to an amount of money that is owed to a business by its customers or clients. It represents a future inflow of cash and is considered as an asset on the balance sheet.
Explanation:
- Asset: An asset is anything that has value and can be owned or controlled by an individual, business, or organization. It represents economic resources that are expected to provide future benefits. Bill receivable falls under this category as it represents a claim on a future cash inflow.
- Characteristics of an Asset:
- It has a future economic benefit that will flow to the entity.
- It is controlled by the entity as a result of past events or transactions.
- It arises from a past transaction or event.
- It is measurable with reliability.
- Importance of Bill Receivable as an Asset:
- It represents the amount of money that a business is entitled to receive from its customers.
- It helps in assessing the financial health and liquidity of a business.
- It can be used as collateral for obtaining loans or credit facilities.
- It contributes to the overall value of the business.
- Other Types of Assets:
- Cash and cash equivalents
- Accounts receivable
- Inventory
- Property, plant, and equipment
- Investments
- Intangible assets
- Conclusion: Bill receivable is an asset because it represents a future economic benefit for a business. It is a valuable resource that contributes to the financial well-being and stability of the entity.

Explanation:
A bill of exchange is a financial instrument used in international trade to guarantee payment between two parties. It is a written order from the drawer (the party who initiates the bill) to the drawee (the party who is obligated to pay) to pay a certain amount of money to the payee (the party who will receive the payment).
When a bill of exchange is renewed, it means that the original bill is extended for a longer period of time. This can happen when the drawee is unable to pay the bill on the original due date and requests an extension.
The renewal of a bill of exchange is typically done at the request of the drawee. The drawee may need more time to gather the funds or may be experiencing financial difficulties that prevent them from making the payment on the original due date.
Therefore, the correct answer is B: Drawee. The drawee is the party who requests the renewal of the bill of exchange.

To determine the due date of a bill when the original due date falls on a public holiday, we need to consider the rules and regulations set by the relevant authorities. Generally, public holidays are non-working days, and therefore, the due date is adjusted accordingly.
The most common practice is to move the due date to the preceding day, which means the bill would be due before the public holiday. This ensures that the payment can be made before the non-working day and avoids any delays in processing the payment.
Explanation:
When the due date is a public holiday, the bill's due date is typically moved to the preceding day. This allows for the payment to be made before the public holiday, ensuring that it is processed in a timely manner. Here's a breakdown of the options and why the answer is B:
A. After two days: This option suggests that the due date would be two days after the public holiday. However, this would result in a delay in payment, as the bill would not be due until after the non-working day.
B. Preceding day: This option is the correct answer. It states that the bill's due date would be moved to the day before the public holiday, ensuring that the payment is made before the non-working day.
C. Following day: This option suggests that the due date would be moved to the day after the public holiday. However, this would result in a delay in payment, as the bill would not be due until after the non-working day.
D. The same day: This option suggests that the due date remains unchanged and falls on the public holiday itself. However, this is unlikely as public holidays are typically non-working days, and it would be inconvenient for customers to make payments on those days.
Therefore, the correct answer is B: Preceding day.

Fee paid in cash to Notary Public is charged by
The fee paid in cash to a Notary Public is charged by the Holder of the bill of exchange. Here's a detailed explanation:
Definition:
- A Notary Public is a public official who is authorized to perform certain legal formalities, such as witnessing signatures, administering oaths, and certifying documents.
- A bill of exchange is a written order from one person (the drawer) to another person (the drawee) to pay a specified amount of money to a third person (the payee) on a specific date or on demand.
Explanation:
- When a bill of exchange is presented for notarization, the Notary Public may charge a fee for their services.
- The fee is typically paid in cash by the person who holds the bill of exchange.
- This fee is charged by the Notary Public as compensation for their time, expertise, and notarial services.
- The fee is separate from any other charges or fees associated with the bill of exchange, such as interest or bank fees.
Conclusion:
- The fee paid in cash to a Notary Public is charged by the Holder of the bill of exchange.
- It is important for the holder of the bill of exchange to be aware of this fee and make the necessary arrangements to pay it when presenting the bill for notarization.

To determine the payee of the bill, we need to understand the concept of endorsement.
Endorsement: Endorsement refers to the transfer of rights to another person by signing on the back of a bill or promissory note. The person who endorses the bill becomes the endorser, and the person to whom the bill is endorsed becomes the endorsee.
Given that Kamal drew the bill on Sahil for Rs.3000 and endorsed it to Rohan, and Rohan further endorsed it to Rakesh, we can conclude the following:
- Kamal is the drawer of the bill, but he is not the payee since he transferred the rights to Rohan through endorsement.
- Sahil is the original debtor, but he is not the payee since he is the one who owes the money.
- Rohan is the first endorsee of the bill, but he is not the payee since he further transferred the rights to Rakesh through endorsement.
- Rakesh is the final endorsee of the bill, and he will be the payee since the bill has been endorsed to him.
Therefore, the payee of the bill is Rakesh (Option D).

The correct answer is option A: Drawee, Drawer.
Here is a detailed explanation of the answer:
- Drawee: The drawee is the person or entity who is directed to make a payment. They are responsible for paying the charges.
- Drawer: The drawer is the person or entity who initiates the payment by issuing a check or making an electronic transfer. They record the charges.
- Charges are paid by the drawee, meaning the person or entity who is directed to make the payment.
- Charges are recordable from the drawer, meaning the person or entity who initiates the payment.
To summarize, charges are paid by the drawee and recorded by the drawer. Therefore, option A: Drawee, Drawer is the correct answer.

The Person who transfers the bill is called the Endorser and the person to whom the bill is endorsed is called Endorsee.

Parties to a Bill of Exchange:
A bill of exchange is a negotiable instrument that is used in international trade or business transactions. It involves various parties, each with specific roles and responsibilities. The parties to a bill of exchange are:
1. Drawer:
- The drawer is the person or entity who creates the bill of exchange.
- They are the creditor or seller who is owed money by the drawee.
- The drawer initiates the bill of exchange and orders the drawee to pay a specific amount of money to the payee.
2. Drawee:
- The drawee is the person or entity on whom the bill of exchange is drawn.
- They are the debtor or buyer who owes money to the drawer.
- The drawee is usually the party who is liable to make the payment to the payee.
3. Payee:
- The payee is the person or entity to whom the payment is to be made.
- They are the creditor or seller who will receive the money from the drawee.
- The payee can be the same as the drawer or a third party nominated by the drawer.
Summary:
In conclusion, the parties to a bill of exchange are the drawer, drawee, and payee. The drawer initiates the bill and is owed money by the drawee. The drawee is the party liable to make the payment, and the payee is the recipient of the payment. These parties play essential roles in the negotiation and payment process of a bill of exchange.

Explanation:
The bill that is not allowed 3 days of grace is the "Bill at sight."
Reasoning:
- A bill at the time of due date refers to a bill that is presented for payment on the actual due date. This bill is allowed 3 days of grace.
- A bill before the due date refers to a bill that is presented for payment before the actual due date. This bill is allowed 3 days of grace.
- A bill after the due date refers to a bill that is presented for payment after the actual due date. This bill is allowed 3 days of grace.
- However, a bill at sight refers to a bill that is payable immediately upon presentation. This bill does not have any grace period and must be paid immediately.
Therefore, the correct answer is option D: Bill at sight.

The purpose of accommodation bill is:
The purpose of an accommodation bill is to provide financial assistance to both parties involved in a transaction when they are in need of funds. It is a type of negotiable instrument that helps facilitate trade transmission. Here's a detailed explanation of the purpose of an accommodation bill:
1. Facilitating trade transmission:
- An accommodation bill helps in the smooth transmission of trade between parties by providing financial assistance.
- It enables businesses to carry out transactions even when they are in need of immediate funds.
- It acts as a short-term credit facility, allowing the parties involved to continue their trade activities.
2. Assisting parties in need of funds:
- The accommodation bill is particularly useful when both parties involved in a transaction require financial support.
- It helps overcome temporary financial difficulties by providing a means to obtain funds.
- By accepting an accommodation bill, the party in need of funds can continue their business operations without disruptions.
3. Negotiable instrument:
- An accommodation bill is a negotiable instrument that can be transferred or endorsed to another party.
- It can be used to obtain funds from banks or other financial institutions by discounting or pledging the bill.
- This flexibility allows parties to access funds quickly and efficiently.
In conclusion, the purpose of an accommodation bill is to facilitate trade transmission and provide financial assistance to both parties involved in a transaction when they are in need of funds. It serves as a short-term credit facility and can be used as a negotiable instrument to obtain funds from financial institutions.

Bank looks for payment from the Drawer in case of a dishonored discounted bill.
Explanation:
When a discounted bill is dishonored, it means that the bank has refused to accept the bill and the payment has not been made. In such a scenario, the bank will seek payment from the party responsible for the bill, which is the drawer.
Here is a detailed explanation of the terms mentioned in the options:
1. Payee: The payee is the person or entity to whom the payment is to be made. In this case, the payee is not responsible for the payment as the bill has been dishonored.
2. Drawer: The drawer is the person or entity who issues the bill and is responsible for making the payment. In case of a dishonored bill, the bank will look for payment from the drawer.
3. Endorser: An endorser is a person who signs the back of a negotiable instrument, such as a bill, to transfer ownership or rights. The endorser is not directly responsible for the payment of the bill.
4. None: This option is incorrect as the bank will definitely seek payment from someone, and that would be the drawer in this case.
Therefore, the correct answer is Option B: Drawer.

Signing by the drawer on the book of instruments for the purpose of transfer
The act described in the question refers to the signing of a document by the drawer, which allows for the transfer of ownership or rights. Let's break down the options and determine the correct answer:
A. Endorsement:
- Endorsement refers to the act of signing a negotiable instrument, such as a check or bill of exchange, to transfer ownership or rights to another party.
- In this case, the drawer signs the document, indicating their endorsement and facilitating the transfer.
B. Cheque:
- A check is a type of negotiable instrument that allows the drawer to make a payment to a payee.
- While the drawer signs the check, it is not specifically for the purpose of transfer mentioned in the question.
C. Bill:
- A bill of exchange is a negotiable instrument that orders the drawer to pay a specific amount of money to the payee or their assignee.
- The signing of the bill by the drawer is essential for its validity and enforceability.
D. Acceptance of bill:
- The acceptance of a bill of exchange is the written agreement by the drawee (the party ordered to pay) to honor the obligation stated in the bill.
- While the acceptance is important, it is not specifically related to the signing by the drawer mentioned in the question.
Answer: A. Endorsement

Balance shown by a B/R book:
The balance shown by a B/R (Bank Reconciliation) book is Debit.
Explanation:
The B/R book is used to reconcile the bank statement with the cash book records. It helps identify any discrepancies between the two and ensures that the bank balance shown in the cash book matches the bank statement.
Here's a detailed explanation of the balance shown by a B/R book:
1. Bank Reconciliation: The process of comparing and adjusting the cash book balance with the bank statement is known as bank reconciliation.
2. Debit Balance: A debit balance in the B/R book means that the cash book balance is higher than the bank statement balance. It indicates that there are outstanding checks or other deductions that have not yet been cleared by the bank.
3. Outstanding Checks: These are checks that have been issued by the company but have not yet been presented to the bank for payment. They are considered as deductions from the bank balance.
4. Other Deductions: Apart from outstanding checks, there can be other deductions such as bank charges, service fees, or interest charges that are recorded in the B/R book as debit entries.
5. Reconciling Items: The B/R book contains a list of reconciling items, including outstanding checks and other deductions. These items are used to adjust the cash book balance and bring it in line with the bank statement balance.
6. Matching Balances: The ultimate goal of the bank reconciliation process is to ensure that the balance shown in the cash book matches the balance shown in the bank statement. This is achieved by accounting for all the reconciling items and making the necessary adjustments.
In summary, a B/R book shows a debit balance, indicating that there are outstanding checks and other deductions that need to be reconciled with the bank statement.

Key Points:
The trade bill is a legal document that outlines the terms and conditions of a trade transaction. It specifies the parties involved and their roles in the transaction. In this case, the question is asking about the party on whom the trade bill is drawn. Let's break down the options and determine the correct answer.
A. Seller:
- The seller is the party who sells the goods or services in a trade transaction.
- The trade bill is not drawn on the seller, as the seller is not a debtor or creditor in this context.
B. Debtor:
- A debtor is a party who owes money or is under an obligation to make payment.
- The trade bill can be drawn on the debtor, as it represents the debtor's obligation to pay for the goods or services received.
C. Creditor:
- A creditor is a party who is owed money or has a claim on someone else's assets.
- The trade bill is not drawn on the creditor, as the creditor is not directly involved in the payment obligation.
D. Owner:
- The owner refers to the party who possesses or has legal rights over the goods or services being traded.
- The trade bill is not drawn on the owner, as the ownership does not determine the payment obligation.
Answer: B. Debtor:
- The trade bill is drawn on the debtor, who is the party obligated to make payment for the goods or services received in the trade transaction.

Answer:
The party who is entitled to receive the cash of a bill receivable is called the Drawer. Here's a detailed explanation:
1. Definition of a bill receivable:
- A bill receivable is a written promise or order to pay a certain amount of money on a specific date.
- It is a financial instrument used in commercial transactions.
2. Parties involved in a bill receivable:
- Drawer: The person or entity who creates and issues the bill receivable.
- Drawee: The person or entity on whom the bill is drawn, and who is obligated to make the payment.
- Payee: The party who is entitled to receive the payment mentioned in the bill.
3. Roles of the parties:
- Drawer: The drawer is the party who creates and issues the bill receivable. They are usually the seller or creditor in a transaction and are entitled to receive the payment.
- Drawee: The drawee is the party on whom the bill is drawn, and they are obligated to make the payment to the payee on the specified due date.
- Payee: The payee is the party who is entitled to receive the cash payment mentioned in the bill. They are usually the buyer or debtor in a transaction.
4. Cash payment:
- When the due date arrives, the drawee is required to make the cash payment to the payee as mentioned in the bill receivable.
- The payee, being the entitled party, receives the cash payment.
5. Conclusion:
- In the context of a bill receivable, the party who is entitled to receive the cash payment is called the Drawer.
- The drawer is the party who creates and issues the bill and is usually the seller or creditor in a transaction.

Discounting Charges:
The correct formula for calculating discounting charges is:
A: Amount of Bill Discounted × Rate × Unexpired Period
Explanation:
To calculate the discounting charges, we need to consider the amount of the bill that has been discounted, the rate of discount, and the unexpired period of the bill. Let's break down the formula:
- Amount of Bill Discounted: This refers to the total amount of the bill that has been discounted.
- Rate: This is the rate of discount applied to the bill.
- Unexpired Period: This is the remaining time period until the bill reaches its maturity date.
- Multiplication: We multiply the amount of bill discounted by the rate and then by the unexpired period to get the discounting charges.
By using this formula, we can accurately calculate the discounting charges for a discounted bill.

According to the Negotiable Instrument Act, 1881, the instrument described in the question refers to a "Promissory note."
Here is a detailed explanation:
Definition: An instrument in writing (not being a bank note or a currency note) containing an unconditional undertaking, signed by the maker to pay on demand or at a fixed or determinable future time a certain sum of money only to or to the order of a certain person, or to the bearer of the instrument.
Key Points:
- The instrument must be in writing.
- It should not be a bank note or a currency note.
- It must contain an unconditional undertaking to pay a certain sum of money.
- The maker of the instrument must sign it.
- The payment can be made on demand or at a fixed or determinable future time.
- The payment can be made only to a certain person or to the order of that person, or to the bearer of the instrument.
Options:
A: Bill of exchange - A bill of exchange is an instrument in writing containing an unconditional order, signed by the drawer, directing a certain person to pay a certain sum of money only to or to the order of a certain person or to the bearer of the instrument.
B: Cheque - A cheque is a bill of exchange drawn on a specified banker and not expressed to be payable otherwise than on demand.
C: Promissory note - As described above, a promissory note fits the definition given in the question.
D: Bearer debentures - Bearer debentures are debt instruments that entitle the holder to receive interest and principal payments. They are not covered under the definition provided.
Conclusion: Based on the definition and the given options, the instrument described in the question refers to a "Promissory note" (Option C).