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

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FAQs on Concept of Bills of Exchange Video Lecture - Accountancy Class 11 - Commerce

1. What is a bill of exchange?
Ans. A bill of exchange is a negotiable instrument that serves as a written order from one party to another, directing the latter to pay a specific amount of money to a third party at a designated future date. It is commonly used in international trade transactions to facilitate the payment process.
2. How does a bill of exchange work?
Ans. When a bill of exchange is created, the party issuing it becomes the drawer, the party who is directed to pay is the drawee, and the party who will receive the payment is the payee. The drawee accepts the bill by signing it, thereby acknowledging the obligation to pay the specified amount to the payee on the maturity date. The bill can be transferred or endorsed to a third party, allowing for flexibility in payment arrangements.
3. What are the advantages of using bills of exchange?
Ans. Bills of exchange offer several advantages in commercial transactions. Firstly, they provide a secure and legally recognized method of payment, reducing the risk of non-payment. Secondly, they allow for deferred payment, giving the buyer more time to arrange funds while assuring the seller of future payment. Thirdly, bills of exchange can be easily transferred to third parties, enabling businesses to monetize their receivables if needed.
4. Can bills of exchange be used for domestic transactions only?
Ans. No, bills of exchange can be used for both domestic and international transactions. While they are commonly used in international trade due to their flexibility and acceptance in different jurisdictions, they are also applicable in domestic transactions. The essential elements and principles of bills of exchange remain the same regardless of the location of the parties involved.
5. What happens if a bill of exchange is dishonored?
Ans. If a bill of exchange is dishonored, it means that the drawee fails to make the payment as per the terms of the bill. In such cases, the holder of the bill can take legal action against the drawee to recover the amount due, along with any applicable penalties or interest. The dishonored bill can also serve as evidence of the drawee's default, which may affect their creditworthiness in future transactions.
82 videos|105 docs|42 tests

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