Renewal of Bill Video Lecture | SSC CGL Tier 2 - Study Material, Online Tests, Previous Year

let us now consider renewal offer their
renewal offer
sometimes when a person is not able to
honor the Bell he'll request for
renewing of the same way in that case as
far as accounting entries are concerned
we cancel the old bill so the old with
the entry is passed just like a dishonor
of a bit canceled the old bill entry for
dishonor and then we create a new bill
pass an entry for a new so the entry for
dishonor of the old bill and an entry
for the new entries aren't the same if
the veil has been dishonored the entry
would be if it has been held in maturity
in the books of the creditor the entry
would be to credit the bill receivable
and debit the data and then for the new
bill a new bill is created
therefore bill receivable account debit
to debtor
similarly entries for dishonor and
entries for a new bill would be passed
in the books of the data the interesting
thing here is that since a new bill is
being created it means the money will
actually be received only after a
certain period so very often interest
for this extra medium is charged
therefore we need to pass an entry for
interest making the interest do either
receivable or payable depending on
whether we are in the books of the
creditor or in the books of the data so
in the books of the creditor in the
books of X in our example if interest is
to be received for a new bill we
would say why is account debit to
interest this interest is for the
remaining period the extra period the
new period which is now coming in the
books of Y similarly the entry would be
interest would be an expense interest
account debit to X's account this entry
needs to be also past this interest may
be settled in cash or it may form a part
of the new day therefore the journal
entries that we need to pass whenever
there is a renewal of bill is is
cancelled the old bill dishonor of the
new bill such dishonor of the old bill
creation of a new bill interest for the
period and procedure creation of the new
building amount may or may not be
inclusive of the interest and a journal
entry to the journal entry to ensure to
ensure that we have understood the
accounting treatment
Tom sells goods to Rahim on 1st April
for 20,000 ROM draws a bill of exchange
on the same date for 3 months it is
accepted by Allah he twenty thousand
three months left on the due date Rahim
requests that the bill be renewed for
two months with interest at the rate of
12 percent per annum past entries in the
books of ROM ROM has sold goods first
entry for sale is trading account debit
to six amount is twenty thousand
next Rahm has drawn the bill Rahim has
accepted the bill therefore its bills
receivable in the books of Rahm they
receivable account debit to rainy so
this account is premiums account is
settled in this man
this was actually and first April if it
is um
if it is a bill for three months first a
print plus three months first April 3
months first me
June July 1st July plus three months
second third and four 4th July would be
the due date of the day all the due date
Rahim requests that the bill be renewed
in order to renew the bill the old bill
is cancelled and a new business created
let us first cancel the old bill entry
would be Reagan's account debit
reinstated as a debtor and built
receivable credited to cancel the old /
before we create the new bill let us
past the entry for interest interest is
12 percent per annum now since it is
renewed for two months it is renewed for
two months we consider two months
interest what is the interest it is
twelve percent of twenty thousand for
two months a simple way of calculation
as I said before if it's twelve percent
per annum we can
it is a simple calculation is to take
one percent for every month one percent
of twenty thousand is two hundred
therefore two hundred for each month for
two months it would be four hundred what
is the entry for interest interest is an
income which is to be paid by Rahim to
rom therefore Raheem's account debit to
interest would be an amount of four
hundred
therefore the value of the new bill now
will be twenty thousand four hundred
entry for new bills bills receivable
account debit - Rahim 20400 this
receivable account debit - raining
twenty thousand four hundred so the
first thing is to cancel the old bill
pass entry for interest and create new
this is the basic structure for passing
entries renewing of a pet cancel the old
bill pass entry for interest if any and
then issue a new pet pass entry for the
new