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Discounting of Bill Video Lecture | Accountancy Class 11 - Commerce

82 videos|105 docs|42 tests

FAQs on Discounting of Bill Video Lecture - Accountancy Class 11 - Commerce

1. What is discounting of a bill?
Ans. Discounting of a bill refers to the process of selling a bill to a financial institution or a bank before its maturity date in exchange for immediate payment. The bank or financial institution deducts a certain amount as discount or interest, and the remaining amount is paid to the bill holder.
2. How does discounting of a bill work?
Ans. When a bill is discounted, the bill holder approaches a bank or financial institution and submits the bill for discounting. The bank or institution calculates the amount of discount based on the remaining time to maturity and prevailing interest rates. The discounted amount, after deducting the discount or interest, is then provided to the bill holder.
3. What are the benefits of discounting a bill?
Ans. Discounting a bill offers several benefits. Firstly, it provides immediate cash flow to the bill holder, which can be used for various purposes such as meeting expenses or investing in other opportunities. Secondly, it transfers the risk of non-payment or delayed payment to the bank or financial institution. Lastly, it enables the bill holder to avail funds at a lower cost compared to other forms of borrowing.
4. Who can avail the facility of bill discounting?
Ans. Bill discounting facilities are typically available to businesses and individuals who hold bills of exchange or promissory notes. These bills should be genuine and legally valid, with a reputable acceptor or drawer. Banks and financial institutions may have specific eligibility criteria and documentation requirements for availing the facility.
5. Are there any risks associated with bill discounting?
Ans. Yes, there are certain risks associated with bill discounting. The primary risk is the possibility of non-payment or delayed payment by the acceptor or drawer of the bill. In such cases, the bank or financial institution may hold the bill holder responsible for the repayment. Additionally, if the bill is dishonored or found to be fraudulent, the bill holder may face legal and financial consequences. It is essential to thoroughly evaluate the creditworthiness and reputation of the acceptor or drawer before discounting a bill.
82 videos|105 docs|42 tests

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