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Accounting treatment of Bill of Exchange Video Lecture | Accountancy Class 11 - Commerce

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FAQs on Accounting treatment of Bill of Exchange Video Lecture - Accountancy Class 11 - Commerce

1. What is the accounting treatment of a Bill of Exchange?
Ans. The accounting treatment of a Bill of Exchange involves recognizing it as a negotiable instrument and recording it in the books of accounts. Initially, the Bill of Exchange is recorded as an accounts receivable for the drawer and as an accounts payable for the drawee. Upon maturity, if the drawee honors the bill, it is recognized as cash received, and the accounts receivable is settled. Alternatively, if the drawee dishonors the bill, it is recorded as a bad debt expense and the accounts receivable is written off.
2. How is a Bill of Exchange recorded in the books of accounts?
Ans. A Bill of Exchange is recorded in the books of accounts by initially recognizing it as an accounts receivable for the drawer and as an accounts payable for the drawee. The amount of the bill is recorded in the respective accounts, and the details of the bill, including the due date, are noted. Upon maturity, if the drawee honors the bill, it is recognized as cash received, and the accounts receivable is settled. If the drawee dishonors the bill, it is recorded as a bad debt expense and the accounts receivable is written off.
3. 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 necessary payment upon maturity. In such a case, the drawer of the bill can take legal action against the drawee to recover the amount due. Additionally, the dishonored bill is recorded as a bad debt expense in the books of accounts, and the accounts receivable is written off.
4. Can a Bill of Exchange be discounted or sold to a third party before maturity?
Ans. Yes, a Bill of Exchange can be discounted or sold to a third party before its maturity date. This allows the drawer to receive immediate cash by selling the bill at a discounted value to a financial institution or any interested party. The discount is usually determined based on the time remaining until the bill's maturity and the prevailing market interest rates.
5. What is the difference between a Bill of Exchange and a Promissory Note?
Ans. The main difference between a Bill of Exchange and a Promissory Note lies in the parties involved. A Bill of Exchange involves three parties: the drawer, who orders the drawee to pay a certain amount to a payee; the drawee, who is obligated to make the payment; and the payee, who receives the payment. On the other hand, a Promissory Note involves only two parties: the maker, who promises to pay a certain amount to the payee, and the payee, who receives the payment. Additionally, a Bill of Exchange is typically used in commercial transactions, while a Promissory Note is often used for personal loans or credit arrangements.
82 videos|105 docs|42 tests

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