Home » Class 11 Accountancy » NCERT Solutions for Class 11 Accountancy Financial Accounting Part-1 Chapter 8 – Bills of Exchange

NCERT Solutions for Class 11 Accountancy Financial Accounting Part-1 Chapter 8 – Bills of Exchange


Short answers : Solutions of Questions on Page Number : 322


Q1 :Name any two types of commonly used negotiable instruments.
Answer :
The two types of commonly used negotiable instruments are:
1. Cheques
2. Bills of exchange


Q2 :Write two points of distinction between bills of exchange and promissory note.
Answer :

Basis of Difference Bills of Exchange Promissory Note
Drawer It is drawn by a creditor. It is drawn by a debtor.
Parties There are three parties involved, namely drawer, drawee and payee. There are two parties involved, namely maker and payee.

Q3 :State any four essential features of bill of exchange.
Answer :
The four essential features of bills of exchange are:
1. It must be a written document.
2. It is an unconditional order to pay by the drawer to the drawee.
3. The maker of bill must sign it, without which it will not be a legal proof.
4. The amount to be paid along with its expiry date must be specifically mentioned (both in figures and words) in a bill of exchange.


Q4 :State the three parties involved in a bill of exchange.
Answer :
The following three parties are involved in a bill of exchange.
1. Drawer who makes the bill
2. Drawee who accepts the bill
3. Payee who receives the payment


Q5 :What is meant by maturity of a bill of exchange?
Answer :
Maturity of a bill means a date on which the bill is due for payment. Maturity date of the bill differs on the basis of the terms and conditions of the bill. There are three types of bill, viz. after date bill, after sight bill and at sight bill.
1. After date bill: In case of after date bill, the payment of the bill is made on the maturity date of the bill. The maturity date of the bill is ascertained by adding three days of grace period with the specified period of the bill (which starts from the date of drawing). For example, if a bill is drawn on 1st March, 2011 and payable after one month; its maturity date is 4th April. If the maturity date happens to be a gazetted holiday, then the bill is due for payment one day before. However, if the maturity date happens to be a casual holiday, then the bill is due for payment after one day.
2. After sight bill: In case of after sight bill, the payment of the bill is made on the maturity date of the bill. The maturity date of the bill is ascertained by adding three days of grace period with the specified period of the bill (which starts from the date of acceptance by the drawee). For example, if a one month bill is drawn on 1st March, 2011 and is accepted by the drawee on 5th March, 2011; its maturity date is 8th April. In this case, the date of the bill starts from 5th March and not from 1st March. If the maturity date happens to be a gazetted holiday, then the bill is payable one day before. However, if the maturity date happens to be a casual holiday, then the bill is payable after one day.
3. At sight bill: In case of at sight bill, the due date of the bill is considered as and when the bill is presented for payment by the holder of the bill. In this case, there is no grace period. The bill becomes due whenever it is presented for payment.


Q6 :What is meant by dishonour of a bill of exchange?
Answer :
Dishonour of a bill happens when the acceptor of the bill fails to make the payment on the date of maturity of the bill. Hence, liability of the acceptor is restored. Entries made for recording dishonour of the bill of exchange are reverse of the entries of recording drawing of the bill.

In the books of drawer

Acceptor A/c

Dr.

To Bills Receivable A/c
(Bill dishonoured)

In the books of acceptor/drawee

Bills Payable A/c

Dr.

To Drawer A/c
(Bill dishonoured)

Q7 :Name the parties to a promissory note
Answer :
The parties to a promissory note are given below.
1. Promissor, who makes the note and undertakes to pay the amount of promissory note.
2. Payee, who receives the payment.


Q8 :What is meant by acceptance of a bill of exchange?


Q3 : Vishal sold goods for Rs 7,000 to Manju on Jan 05, 2006 and drew upon her a bill of exchange payable after 2 months. Manju accepted Vishal’s draft and handed over the same to Vishal after acceptance. Vishal immediately discounted the bill with his [email protected]% p.a. On the due date Manju met her acceptance. Journalise the above transactions in the books of Vishal and Manju.
Answer:

Books of Vishal

Journal

Date

Particulars

L.F.

Debit

Amount

Rs

Credit

Amount

Rs

2011

Jan.05

Manju

Dr.

7,000

To Sales A/c

7,000

(Goods sold to Manju)

Jan.05

Bills Receivable A/c

Dr.

7,000

To Manju

7,000

(Manju’s acceptance received for two months)

Jan.05

Bank A/c

Dr.

6,860

Discount A/c

Dr.

140

7,000

To Bills Receivable A/c

(Bill Receivable discounted with the bank @ 12 % p.a. for two months)

 

Books of Manju

Journal

Date

Particulars

L.F.

Debit

Amount

Rs

Credit

Amount

Rs

2011

Jan.05

Purchases A/c

Dr.

7,000

To Vishal

7,000

(Goods purchased from Vishal)

Jan.05

Vishal

Dr.

7,000

To Bills Payable A/c

7,000

(Bill drawn by Vishal accepted)

Mar.08

Bills Payable A/c

Dr.

7,000

To Bank A/c

7,000

(Amount of Bill Payable paid to bank on maturity)

Answer :  A bill is drawn in favour of a person from whom the amount is due. In other words, a bill of exchange is drawn by the creditors on his/her debtors to make payment of specific amount, on a mentioned date. Generally, a bill is drawn by a seller to a purchaser. Purchaser accepts the bill for the amount due on account of the credit sales. The bill may be accepted for the amount due other than credit purchases, such as commission payable, salary outstanding, etc. A bill cannot come into existence without the acceptance of a debtor.


Q9 :What is Noting of a bill of exchange.
Answer :
When a bill is presented for payment and acceptor fails to make payment, the bill gets dishonoured. In order to keep a legal proof of dishonour, the bill gets noted by the Notary public (which is approved by the government). In exchange of the Notary service, Notary public charges fees, known as Noting charges. Notary public notes the following facts:
1. Date and amount of the bill
2. Reasons for dishonour
3. Amount of Noting charges


Q10 :What is meant by renewal of a bill of exchange?
Answer :  When an acceptor of a bill does not have sufficient fund to meet the obligations of the bill on time, he/she requests the drawer for extension (of time) for payment. If the drawer agrees, then a new bill is drawn which is known as renewal of bill. Generally, a bill is renewed on the condition that the drawee has to pay interest for the extended period.


Q11 :Give the performa of a Bills Receivable Book.
Answer :

Serial Number of Bill

Date Received

Date of Bill

Received From Whom

Drawer

Acceptor

Where payable

Term

Due date

Ledger Folio

Amount

Cash Book Folio

Remarks

 

 

 

 


Q12 :Give the performa of a Bills Payable Book.
Answer :

Serial Number of Bill

Date of Bill

Given To Whom

Drawer

Payee

Payable Where

Term of Bill

Due Date

Ledger Folio

Amount Paid

Date

Cash Book Folio

Remarks

 

 

 


Q13 :What is retirement of a bill of exchange?
Answer :  When a holder receives the amount of a bill before the maturity date on the request of the acceptor, then it is called retirement of the bill of exchange. Holder of the bill may give discount for such earlier payment. This discount is termed as ‘rebate’.
Entry in the books of the holder of the bill

Cash A/c

Dr.

Rebate A/c

Dr.

To Bills Receivable A/c
(Bill amount received before maturity and rebate allowed)

Entry in the books of the acceptor (drawee) of the bill

Bills Payable A/c

Dr.

To Cash A/c
To Rebate A/c
(Bill paid and received rebate for early payment)

Q14 :Give the meaning of rebate.
Answer : If the drawee expresses his/her wish to pay the bill before the due date to the holder, and if the holder accepts his/her request, then on account of the early payment, the holder may give some discount. This discount is termed as rebate. In other words, rebate is a discount given by the holder to the drawee (or acceptor) for his/her request of early payment of the bill before the due date. It is an expense for the drawer and hence, is debited to the drawer’s books. On the other hand, as it is a gain for the acceptor of bill, so it is credited in the drawee’s books.

Entry in the books of drawer of the bill:

Cash A/c

Dr.

Rebate A/c

Dr.

To Bills Receivable A/c
(Bill honoured before maturity)

Entry in the books of drawee of the bill:

Bills Payable A/c

Dr.

To Cash A/c
To Rebate A/c
(Bill paid and rebate received)

Q15 :Give the performa of a Bill of Exchange.
Answer :
Performa of a Bill of exchange is given below.

Mr. X (The Drawer)

Rs 25,000

New Delhi

May 01, 2011

Two months after date pay to me or my order, the sum of
rupees twenty five thousand only, for value received

Accepted

(Signed)

To

Mr. Z (The Drawee)

May 01, 2011

Tilak Nagar,

New Delhi 110018

(Signed)

Mr. X

Janak Puri, New Delhi

110032

 


Long answers : Solutions of Questions on Page Number : 322


Q1 :A bill of exchange must contain an unconditional promise to pay. Do you agree with a statement?
Answer :  According to Negotiable Instrument Act, 1981, “A bill of exchange is defined as an instrument in writing, containing an unconditional order, signed by the maker, 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.”
A bill of exchange contains an unconditional promise to pay a certain sum of money on an agreed date to the drawer or the bearer by the drawee of the bill.
An unconditional order to pay: It is one of the important characteristic of a negotiable instrument. Unconditional order implies no condition should be attached by the acceptor regarding the payment. The conditions like, payment of bill (only in case of profit on sales), payment of bill (only if the prices of goods increase), etc. should not be attached with the bill. Moreover, the language of the bill should not be ambiguous.


Q2 :Briefly explain the effects of dishonour and noting of a bill of exchange.
Answer :  When a bill is presented for payment and the acceptor fails to make the payment, the bill gets dishonoured. In this situation, liability of the acceptor is restored.
Entry in the books of drawer (if Noting charges are not paid):

Drawee

Dr.

To Bills Receivable A/c
(Bill dishonoured)

Entry in the books of drawee:

Bills Payable A/c

Dr.

To Drawer
(Bill dishonoured)

Noting charges are charged by the notary public for keeping a proof that the bill is dishonoured. The noting charges are paid by the holder of the bill but actually due on the drawee or the acceptor of the bill..

1. Date and amount of bill

2. Reasons for dishonour

3. Amount of noting charges

Effect of Noting charges in the books of holder of bill (if Noting charges are paid):

Drawee

Dr.

To Bills Receivable A/c
To Cash A/c (Noting charges)
(Bill dishonoured and Noting charges paid)

Q3 : Explain briefly the procedure of calculating the date of maturity of a bill of exchange? Give example.
Answer :
The procedure to calculate the date of maturity of a bill of exchange is given below.
1. Ascertain the date on which the bill will be honoured.
2. Add three days of grace to the above date.
For example, a bill with maturity period of one month is drawn on 1st July and due date is 1st September. Then add 3 days of grace and payment will be made on 4th September.
Days of grace depend on the following situations:
1. Declared holidays: If the payment day happens to be a national holiday or Sunday, then the preceding day becomes the payment day.
For example,
If a bill is drawn on 12th July and its due date is 12th August, then after adding 3 days of grace the maturity day is 15th August. However, as 15th August is a national holiday; so, 14th August becomes the payment day.
If a bill is drawn on 1st May and the maturity period is of one month, then the due date is 1st June. After adding 3 days of grace, the payment date becomes 4th June. However, if 4th June happens to be a Sunday, then the payment will be made on 3rd June.
2. Undeclared holidays: If the payment day happens to be an emergency holiday, then the succeeding day becomes the payment day. For example, if a bill is drawn on 1st May and is payable after 15 days, then, after adding 3 days of grace period, the due date becomes 18th May. However, if a national strike is declared on 18th May, then 19th May becomes the due date of the bill.


Q4 :Distinguish between bill of exchange and promissory note.
Answer :

Basis of Difference

Bills of Exchange

Promissory Note

Order or promise

It is an order to pay.

It is a promise to pay.

Parties

There are three parties involved, drawer, acceptor and
payee.

There are two parties involved, maker and payee.

Drawer

It is drawn by the creditor.

It is drawn by the debtors.

Acceptance

It needs acceptance by the drawee.

As it is prepared by promissor, so no acceptance is
required.

Payee

Drawer and payee may be the same.

Promissor cannot be the payee.

Noting

In case of dishonour of the bill, the bill may get
noted.

Noting is not necessary.

Liability

Drawer is not primarily liable.

Promissor is the primarily liable.


Q5 :Briefly explain the purpose and benefits of retiring a bill of exchange to the debtor and the creditor.
Answer :
When a holder receives the amount of a bill before the maturity date on request of the acceptor, it is called retirement of the bill of exchange. Holder of the bill may give discount for such earlier payment. This discount is termed as ‘rebate’.
Rebate is given by the holder to the acceptor of the bill on account of payment before the due date. Rebate is a loss for the holder of the bill; so, it is debited in the books of the holder when payment is received.

Cash A/c

Dr.

Rebate A/c

Dr.

To Bills Receivable A/c
(Payment received and rebate allowed for early payment)

Acceptor of the bill gets rebate for the payment made before the due date. The rebate is a gain for the drawee; so, it is credited in the books of the drawee.

Bills Payable A/c

Dr.

To Cash A/c
To Rebate A/c
(Bill paid before the due date and rebate received for
early payment)

Q6 :Explain briefly the purpose and advantages of maintaining of a Bills Receivable Book.
Answer :
Bills Receivable Book is a special purpose book that is maintained to keep records of bills received from the debtors. It contains details such as acceptor’s name, date of bill, due date, amount, etc. for future references. It is totalled periodically and its balance is transferred to the debit side of the bills receivable account.
Benefits of Maintaining the Bill Receivable Book
1. Availability of information: All the information related to the bills receivable, such as amount, due date, etc., are recorded at one place and hence are easily accessible.
2. Possibility of fraud: Since all the bills are recorded at one place, possibility of fraud is minimised.
3. Responsibility: The person who maintains the bills receivable book will also be responsible for any errors or omissions. Therefore, higher degree of accountability and responsibility exists. Also, if any error is detected, then it can be fixed quickly.
4. Time efficient: Recording of bills receivable through the bills receivable book takes lesser time than that of journal entry. Therefore, it saves time of the accountant in recording numerous transactions of repetitive and routine nature.


Q7 :Briefly explain the benefits of maintaining a Bills Payable Book and state how is its posting is done in the ledger?
Answer : A Bills Payable Book is a special purpose book, maintained to keep records of acceptance of bills, given to the creditors. It contains details of the amount, date of bill, due date, to whom acceptance is given, etc., for future references. It is totalled periodically and its balance is transferred to the credit side of the bills payable account.
Benefits of Maintaining Bills Payable Book
1. Availability of information: All the information related to the bills payable are recorded at one place, such as the amount, due date, etc.
2. Possibility of fraud: Since all the bills are recorded at one place, possibility of fraud is minimised.
3. Responsibility: All the transactions are recorded by the same person. Therefore, errors can be easily detected and rectified. This leads to a higher degree of responsibility and accountability of the accountant.


Numerical questions : Solutions of Questions on Page Number : 323


Q1 : On Jan 01, 2006 Rao sold goods Rs 10,000 to Reddy. Half of the payment was made immediately and for the remaining half Rao drew a bill of exchange upon Reddy payable after 30 days. Reddy accepted the bill and returned it to Rao. On the due date Rao presented the bill to Reddy and received the payment Journalise the above transactions in the books Rao and prepare of Rao’s account in the books of Reddy.
Answer :

Books of Rao

Journal

Date

Particulars

L.F.

Debit

Amount

Rs

Credit

Amount

Rs

2011

Jan.01

Reddy

Dr.

10,000

To Sales A/c

10,000

(Goods sold to Reddy)

Jan.01

Cash A/c

Dr.

5,000

To Reddy

5,000

(Cash received from Reddy)

Jan.01

Bills Receivable A/c

Dr.

5,000

To Reddy

5,000

(Bill received for 30 days accepted by Reddy)

Feb.03

Cash A/c

Dr.

5,000

To Bills Receivable A/c

5,000

(Reddy’s acceptance met on due date)

Books of Reddy

Rao’sAccount

Dr.

Cr.

Date

Particulars

J.F.

Amount

Rs

Date

Particulars

J.F.

Amount

Rs

Jan.01

Cash

5,000

2011

Jan.01

Bills Receivable

5,000

Jan.01

Purchases

10,000

10,000

10,000


Q2 : On Jan 01,2006, Shankar purchased goods from Parvati for Rs 8,000 and immediately drew a promissory note in favour of Parvati payable after 3 months. On the date of maturity of the promissory note, the Government of India declared holiday under the Negotiable Instrument Act 1881. Since, Parvati was unaware about the provision of the law regarding the date of maturity of the bill, she handed over the bill to her lawyer, who duly presented the bill and received the payment. The amount of the bill was handed over by the lawyer to Parvati immediately. Record the necessary Journal entries in the books of Parvati and Shankar.
Answer:

Books of Parvati

Journal

Date

Particulars

L.F.

Debit

Amount

Rs

Credit

Amount

Rs

2011

Jan.01

Shankar

Dr.

8,000

To Sales A/c

8,000

(Goods sold to Shankar)

Jan.01

Bills Receivable A/c

Dr.

8,000

To Shankar

8,000

(Promissory Note received from Shankar for

three months)

Apr.05

Cash A/c

Dr.

8,000

To Bills Receivable A/c

8,000

(Cash received for Promissory Note one day after the

maturity date on account of holiday declared by Govt.)

 

Books of Shankar

Journal

Date

Particulars

L.F.

Debit

Amount

Rs

Credit

Amount

Rs

2011

Jan.01

Purchases A/c

Dr.

8,000

To Parvati

8,000

(Goods purchased from Parvati)

Jan.01

Parvati

Dr.

8,000

To Bills Payable A/c

8,000

(Promissory note for three months sent to Parvati)

Apr.5

Bills Payable A/c

Dr.

8,000

To Cash A/c

8,000

(Cash paid on maturity of promissory note)


Q3 : Vishal sold goods for Rs 7,000 to Manju on Jan 05, 2006 and drew upon her a bill of exchange payable after 2 months. Manju accepted Vishal’s draft and handed over the same to Vishal after acceptance. Vishal immediately discounted the bill with his [email protected]% p.a. On the due date Manju met her acceptance. Journalise the above transactions in the books of Vishal and Manju.
Answer:

Books of Vishal

Journal

Date

Particulars

L.F.

Debit

Amount

Rs

Credit

Amount

Rs

2011

Jan.05

Manju

Dr.

7,000

To Sales A/c

7,000

(Goods sold to Manju)

Jan.05

Bills Receivable A/c

Dr.

7,000

To Manju

7,000

(Manju’s acceptance received for two months)

Jan.05

Bank A/c

Dr.

6,860

Discount A/c

Dr.

140

7,000

To Bills Receivable A/c

(Bill Receivable discounted with the bank @ 12 % p.a. for two months)

 

Books of Manju

Journal

Date

Particulars

L.F.

Debit

Amount

Rs

Credit

Amount

Rs

2011

Jan.05

Purchases A/c

Dr.

7,000

To Vishal

7,000

(Goods purchased from Vishal)

Jan.05

Vishal

Dr.

7,000

To Bills Payable A/c

7,000

(Bill drawn by Vishal accepted)

Mar.08

Bills Payable A/c

Dr.

7,000

To Bank A/c

7,000

(Amount of Bill Payable paid to bank on maturity)

Q4 :On Feb 01, 2006, John purchased goods for Rs 15,000 from Jimmy. He immediately made a payment of Rs 5,000 by cheque and for the balance accepted the bill of exchange drawn upon him by Jimmy. The bill of exchange was payable after 40 days. Five days before the maturity of the bill, Jimmy sent the same to his bank for collection. The bank duly presented the bill to John on the due date who met the bill. The bank informed the same to Jimmy. Prepare John’s account in the books of Jimmy and Jimmy account in the books of John.
Answer:

Books of Jimmi

Journal

Date

Particulars

L.F.

Debit

Amount

Rs

Credit

Amount

Rs

2011

Feb.01

John

Dr.

15,000

To Sales A/c

15,000

(Goods sold to John)

Feb.01

Bank A/c

Dr.

5,000

To John

5,000

(Cheque received for Rs 5,000 from John)

Feb.01

Bills Receivable A/c

Dr.

10,000

To John

10,000

(Bill received from John for 40 days)

Mar.10

Bill Sent for Collection A/c

Dr.

10,000

To Bills Receivable A/c

10,000

(John’s acceptance sent to bank for collection)

Mar.15

Bank A/c

Dr.

10,000

To Bill Sent for Collection A/c

10,000

(John’s acceptance met on due date and bank

received the payment)

 

Ledger

John’s Account

Dr.

Cr.

Date

Particulars

J.F.

Amount Rs

Date

Particulars

J.F.

Amount Rs

2011

2011

Feb.01

Sales

15,000

Feb.01

Bank

5,000

Feb.01

Bills Receivable

10,000

15,000

15,000

 

Books of John

Journal

Date

Particulars

L.F.

Debit

Amount

Rs

Credit

Amount

Rs

2011

Feb.01

Purchases A/c

Dr.

15,000

To Jimmi

15,000

(Goods purchased from Jimmi)

Feb.01

Jimmi

Dr.

5,000

To Bank A/c

5,000

(Cheque paid to Jimmi)

Feb.01

Jimmi

Dr.

10,000

To Bills Payable A/c

10,000

(Bill drawn by Jimmi accepted for 40 days)

Mar.15

Bills Payable A/c

Dr.

10,000

To Bank A/c

10,000

(Payment of bill made on maturity to bank)

 

Ledger

Jimmi’s Account

Dr.

Cr.

Date

Particulars

J.F.

Amount Rs

Date

Particulars

J.F.

Amount Rs

2011

2011

Feb.01

Bank

5,000

Feb.01

Purchases

15,000

Feb.01

Bills Payable

10,000

15,000

15,000


Q5 : On Jan 15, 2006, Kartar Sold goods for Rs 30,000 to Bhagwan and drew upon him three bills of exchanges of Rs 10,000 each payable after one month, two month, and three months respectively. The first bill was retained by Kartar till its maturity. The second bill was endorsed by him in favour of his creditor Ratna and the third bill was discounted by him immediately @ 6% p.a. All the bills were met by Bhagwan. Journalise the above transactions in the books of Kartar and Bhagwan. Also prepare ledger accounts in books of Kartar and Bhagwan.
Answer :

Journal Entries in the Books of Kartar

Date

Particulars

L.F.

Debit

Amount

Rs

Credit

Amount

Rs

2011

Jan.15

Bhagwan

Dr.

30,000

To Sales A/c

30,000

(Goods sold to Bhagwan)

Jan.15

Bills Receivable A/c

Dr.

10,000

To Bhagwan

10,000

(Three bills of Rs 10,000 each, received from

Bhagwan–first bill for one month, second bill

for two months and third bill for three months)

Jan.15

Ratna

Dr.

10,000

To Bills Receivable A/c

10,000

(Second bill endorsed to Ratna)

Jan.15

Bank A/c

Dr.

9,850

Discount A/c

Dr.

150

To Bills Receivable A/c

10,000

(B/R discounted)

Feb.19

Cash A/c

Dr.

10,000

To Bills Receivable A/c

10,000

(First bill for one month met by Bhagwan, on due date)

 

Bhagwana’s Account

Dr.

Cr.

Date

Particulars

J.F.

Amount

(Rs)

Date

Particulars

J.F.

Amount

(Rs)

2011

2011

Jan. 15

Sales A/c

30,000

Jan. 15

Bills Receivable A/c

30,000

30,000

30,000

 

Ratna’s Account

Dr.

Cr.

Date

Particulars

J.F.

Amount

(Rs)

Date

Particulars

J.F.

Amount

(Rs)

2011

2011

Jan. 15

Bills Receivable A/c

10,000

Jan. 15

Balance b/d

10,000

10,000

10,000

 

Bills Receivable Account

Dr.

Cr.

Date

Particulars

J.F.

Amount

(Rs)

Date

Particulars

J.F.

Amount

(Rs)

2011

2011

Jan. 15

Bhagwan

30,000

Jan. 15

Ratna

10,000

Jan. 15

Bank A/c

9,850

Jan. 15

Discount A/c

150

Feb. 19

Cash

10,000

30,000

30,000

 

Cash Account

Dr.

Cr.

Date

Particulars

J.F.

Amount

(Rs)

Date

Particulars

J.F.

Amount

(Rs)

2011

2011

Feb. 19

Bills Receivable

10,000

Feb. 19

Balance c/d

10,000

10,000

10,000

 

Bank’s Account

Dr.

Cr.

Date

Particulars

J.F.

Amount

(Rs)

Date

Particulars

J.F.

Amount

(Rs)

2011

2011

Jan. 15

Bills Receivable

9,850

Jan. 15

Balance c/d

9,850

9,850

9,850

 

Journal Entries in the Books of Bhagwan

Date

Particulars

L.F.

Debit

Amount

Rs

Credit

Amount

Rs

2011

Jan.15

Purchases A/c

Dr.

30,000

To Kartar

30,000

(Good purchased from Kartar on credit)

Jan.15

Kartar

Dr.

30,000

To Bills Payable A/c

30,000

(Three bill Rs 10,000 each drawn by Kartar–

The first bill for one month, the second bill for two months

and the third bill for three months, accepted and

returned them to Kartar)

Feb.19

Bills Payable A/c

Dr.

10,000

To Cash A/c

10,000

(First bill was paid on due date)

Mar.19

Bills Payable A/c

Dr.

10,000

To Bank A/c

10,000

(Second bill was paid on due date to Ratna)

Apr.19

Bills Payable A/c

Dr.

10,000

To Bank A/c

10,000

(Third bill was paid on due date to bank)

 

Kartar’s Account

Dr.

Cr.

Date

Particulars

J.F.

Amount

(Rs)

Date

Particulars

J.F.

Amount

(Rs)

2011

2011

Jan. 15

Bills Payable A/c

30,000

Jan. 15

Purchases

30,000

30,000

30,000

 

Bills Payable Account

Dr.

Cr.

Date

Particulars

J.F.

Amount

(Rs)

Date

Particulars

J.F.

Amount

(Rs)

2011

2011

Feb. 19

Cash A/c

10,000

Jan. 15

Kartar

30,000

Mar. 19

Bank A/c

10,000

Apr. 19

Bank A/c

10,000

30,000

30,000

 

Cash Account

Dr.

Cr.

Date

Particulars

J.F.

Amount

(Rs)

Date

Particulars

J.F.

Amount

(Rs)

2011

2011

Feb. 19

Balance b/d

10,000

Feb. 19

Bills Payable A/c

10,000

10,000

10,000


Q6 : On Jan. 01, 2006 Arun sold goods for Rs 30,000 to Sunil. 50% of the payment was made immediately by Sunil on which Arun allowed a cash discount of 2%. For the balance Sunil drew a promissory note in favour of Arun payable after 20 days. Since, the date of maturity of bill was a public holiday, Arun presented the bill on a day, as per the provisions of Negotiable Instrument Act which was met by Sunil. State the date on which the bill was presented by Arun for payment and Jounalise the above transactions in the books of Arun and Sunil.
Answer :

Journal Entries in the Books of Arun

Date

Particulars

L.F.

Debit

Amount

Rs

Credit

Amount

Rs

2011

Jan.01

Sunil

Dr.

30,000

To Sales A/c

30,000

(Goods sold to Sunil)

Jan.01

Cash A/c

Dr.

14,700

Discount Allowed A/c

Dr.

300

To Sunil

15,000

(Half of the amount due from Sunil was received and

allowed him 2% Cash Discount)

Jan.01

Bills Receivable A/c

Dr.

15,000

To Sunil

15,000

(Promissory note received for 20 days from Sunil

for balance amount due from Sunil)

Jan.23

Cash A/c

Dr.

15,000

To Bills Receivable A/c

15,000

(Cash received from Sunil for B/R one day before

maturity, as per negotiable instrument act, if the

date of maturity is holiday, negotiable instrument

will be met one day before maturity)

NoteDate of maturity of the promissory note is Jan. 24, 2011, on account of holiday, it will be presented one day earlier that is on Jan. 23, 2011

Journal Entries in the Book of Sunil

Date

Particulars

L.F.

Debit Amount Rs

Credit Amount Rs

2011

Jan.01

Purchases A/c

Dr.

30,000

To Arun

30,000

(Goods purchased from Arun)

Jan.01

Arun

Dr.

15,000

To Cash A/c

14,700

To Discount Received A/c

300

(Half amount due to Arun paid by cheque and 2% discount allowed by him)

Jan.01

Arun

Dr.

15,000

To Bills Payable A/c

15,000

(Promissory note issued in favour of Arun for twenty days)

Jan.23

Bills Payable A/c

Dr.

15,000

To Cash A/c

15,000

(Promissory note met one day before the maturity day)


Q7 : Darshan sold goods for Rs 40,000 to Varun on 8.1.2006 and drew upon him a bill of exchange payable after two months. Varun accepted the bill and returned the same to Darshan. On the due date the bill was met by Varun. Record the necessary Journal entries in the books of Darshan and Varun in the following circumstances.
When the bill was retained by Darshan till the date of its maturity.
When Darshan immediately discounted the bill @ 6% p.a. with his bank.
When the bill was endorsed immediately by Darshan in favour of his creditor Suresh.
When three days before its maturity, the bill was sent by Darshan to his bank for collection.
Answer :
Case (i): When the bill was retained by Darshan till the date of its maturity

Journal Entries in the Books of Darshan

Date

Particulars

L.F.

Debit

Amount

Rs

Credit

Amount

Rs

2011

Jan.08

Varun

Dr.

40,000

To Sales A/c

40,000

(Goods sold to Varun)

Jan.08

Bills Receivable A/c

Dr.

40,000

To Varun

40,000

(Varun’s acceptance received for two months)

Mar.11

Cash A/c

Dr.

40,000

To Bills Receivable A/c

40,000

(Payment for B/R received for B/R)

 

Journal Entries in the Books of Varun

Date

Particulars

L.F

Debit Amount Rs

Credit Amount Rs

2011

Jan.08

Purchases A/c

Dr.

40,000

To Darshan

40,000

(Goods bought from Darshan)

Jan.08

Darshan

Dr.

40,000

To Bills Payable A/c

40,000

(Bill of two months accepted for Darshan)

Mar.11

Bills Payable A/c

Dr.

40,000

To Cash A/c

40,000

(Varun cleared his acceptance on the due date)

Case (ii): When Darshan immediately discounted the bill @ 6% p.a. with the bank.

Journal Entries in the Books of Darshan

Date

Particulars

L.F.

Debit

Amount

Rs

Credit

Amount

Rs

2011

Jan.08

Varun

Dr.

40,000

To Sales A/c

40,000

(Goods sold to Varun)

Jan.08

Bills Receivable A/c

Dr.

40,000

To Varun

40,000

(B/R received from Varun for two months)

Jan.08

Bank A/c

Dr.

39,600

Discount A/c

Dr.

400

To Bills Receivable A/c

40,000

(B/R discounted from bank @ 6 p.a.)

 

Journal Entries in the Books of Varun

Date

Particulars

L.F.

Debit Amount Rs

Credit Amount Rs

2011

Jan.08

Purchases A/c

Dr.

40,000

To Darshan

40,000

(Goods bought from Darshan)

Jan.08

Darshan

Dr.

40,000

To Bills Payable A/c

40,000

(Bill of two months accepted for Darshan)

Mar.11

Bills Payable A/c

Dr.

40,000

To Bank A/c

40,000

(Varun cleared his acceptance on the

due date)

Case (iii): When the bill was endorsed immediately by Darshan in favour of his creditor Suresh.

Journal Entries in the Books of Darshan

Date

Particulars

L.F.

Debit

Amount

Rs

Credit

Amount

Rs

2011

Jan.08

Varun

Dr.

40,000

To Sales A/c

40,000

(Goods sold to Varun)

Jan.08

Bills Receivable A/c

Dr.

40,000

To Varun A/c

40,000

(Varun’s acceptance received for two months)

Jan.08

Suresh A/c

Dr.

40,000

To Bills Receivable A/c

40,000

(Varun’s acceptance endorsed in favour of Suresh)

 

Journal Entries in the Books of Varun

Date

Particulars

L.F

Debit Amount Rs

Credit Amount Rs

2011

Jan.08

Purchases A/c

Dr.

40,000

To Darshan

40,000

(Goods bought from Darshan)

Jan.08

Darshan

Dr.

40,000

To Bills Payable A/c

40,000

(Bill drawn by Darshan accepted for two months)

Mar.11

Bills Payable A/c

Dr.

40,000

To Cash A/c

40,000

(Bill paid to the holder of bill)

Case (iv): When three days before its maturity, the bill, as sent by Darshan to his bank for Collection.

Journal Entries in the Books of Darshan

Date

Particulars

L.F.

Debit

Amount

Rs

Credit

Amount

Rs

2011

Jan.08

Varun A/c

Dr.

40,000

To Sales A/c

40,000

(Goods sold to Varun)

Jan.08

Bills Receivable A/c

Dr.

40,000

To Varun A/c

40,000

(Varun’s acceptance received for two months)

Mar.08

Bill Sent for Collection A/c

Dr.

40,000

To Bills Receivable A/c

40,000

(Bill sent for collection sent to the bank)

Mar.11

Bank A/c

Dr.

40,000

To Bill Sent for Collection

40,000

(Bill amount was met)

 

Journal Entries in the Books of Varun

Date

Particulars

L.F.

Debit

Amount

Rs

Credit

Amount

Rs

2011

Jan.08

Purchases A/c

Dr.

40,000

To Darshan

40,000

(Goods bought from Darshan)

Jan.08

Darshan

Dr.

40,000

To Bills Payable A/c

40,000

(Bill drawn by Darshan accepted for two

months)

Mar.11

Bills Payable A/c

Dr.

40,000

To Bank A/c

40,000

(Bill paid to the bank)


Q8 : Bansal Traders allow a trade discount of 10% on the list price of the goods purchased from them. Mohan traders, who runs a retail shop made the following purchases from Bansal Traders

Date

Amount

Rs

Dec.21, 2005

1,000

Dec.26, 2005

1,200

Dec.18, 2005

2,000

Dec.31, 2005

5,000

For all the purchases Mohan Traders drew promissory note in favour of Bansal Traders payable after 30 days. The promissory note for the sale of Dec. 21, 2005 was retained by Bansal Traders with them till the date of its maturity. The promissory note drawn on 26.12.2005 was discounted by Bansal Traders from their bank at 12% p.a. The promissory note drawn on Dec. 28, 2005 was endorsed by Bansal Traders in favour of their creditor Dream Soaps in full settlement of a purchase amounting to Rs 1,900. On 25.1.2006 Bansal Traders sent the promissory note drawn on Dec. 31, 2005 to their bank for collection. All the promissory notes were met by Mohan Trade Rs Record the necessary journal entries for the above transactions in the books of Bansal Traders and Mohan Traders and prepare Mohan Traders account in the books of Bansal Traders and Bansal Traders account in the books of Mohan Trade Rs
Answer:

 

Journal Entries in the Books of Bansal Traders

Date

Particulars

L.F.

Debit Amount Rs

Credit Amount Rs

2010

Dec.21

Mohan Traders

Dr.

900

To Sales A/c

900

(Goods sold to Mohan Traders list price Rs

1,000 at 10% trade discount)

2010

Dec.21

Bills Receivable A/c

Dr.

900

To Mohan Traders

900

(Promissory note received from Mohan Traders

payable after 30 days)

2010

Dec.26

Mohan Traders

Dr.

1,080

To Sales A/c

1,080

(Goods sold to Mohan Traders list price Rs

1,200 at 10% trade discount)

2010

Dec.26

Bills Receivable A/c

Dr.

1,080

To Mohan Traders

1,080

(Promissory note received from Mohan Traders)

2010

Dec.26

Bank A/c

Dr.

1,071

Discount A/c

Dr.

9

To Bills Receivable A/c

1,080

(Promissory note discounted from the Bank)

2010

Dec.28

Mohan Traders A/c

Dr.

1,800

To Sales A/c

1,800

(Goods sold to Mohan Traders list price Rs

2,000 at 10% trade discount)

2010

Dec.28

Bills Receivable A/c

Dr.

1,800

To Mohan Traders A/c

1,800

(Promissory note received from Mohan Traders)

2010

Dec.28

Dream Soaps A/c

Dr.

1,900

To Bills Receivable A/c

1,800

To Discount Received A/c

100

(Promissory note of Rs 1,800 sent to Dream

Soap in full settlement of amount due to him)

2010

Dec.31

Mohan Traders

Dr.

4,500

To Sales A/c

4,500

(Goods sold to Mohan trades list price Rs

5,000 at 10% trade discount)

2010

Dec.31

Bills Receivable A/c

Dr.

4,500

To Mohan Traders

4,500

(Promissory note received from Mohan Traders for 30 days)

2011

Jan.23

Cash A/c

Dr.

900

To Bills Receivable A/c

900

(Promissory note issued on Dec. 21,

2005 was met on maturity)

2011

Jan.25

Bill Sent for collection A/c

Dr.

4,500

To Bills Receivable A/c

4,500

(Promissory note issued on Dec. 31, 2005

sent for collection to bank)

2011

Feb.02

Bank A/c

Dr.

4,500

To Bill Sent for Collection A/c

4,500

(Bank got payment of bill sent for collection

on due date)

 

In the books of Bansal Traders

Mohan Trader’s Account

Dr.

Cr.

Date

Particulars

J.F.

Amount

Rs

Date

Particulars

J.F.

Amount

Rs

2010

2010

Dec.21

Sales

900

Dec.21

Bills Receivable

900

Dec.26

Sales

1,080

Dec.26

Bills Receivable

1,080

Dec.28

Sales

1,800

Dec.28

Bills Receivable

1,800

Dec.31

Sales

4,500

Dec.31

Bills Receivable

4,500

8,280

8,280

 

Journal Entries in the Books of Mohan Trader’s

Date

Particulars

L.F.

Debit Amount Rs

Credit Amount Rs

2010

Dec.21

Purchases A/c

Dr.

900

To Bansal Traders

900

(Goods bought from Bansal Trader’s list price Rs

1,000 at 10% trade discount)

2010

Dec.21

Bansal Trader

Dr.

900

To Bills Payable A/c

900

(Promissory note issued Bansal Traders for Rs 900)

2010

Dec.26

Purchases A/c

Dr.

1,080

To Bansal Traders

1,080

(Goods bought from Bansal Traders list price Rs

1,200 at 10% Trade discount)

2010

Dec.26

Bansal Traders

Dr.

1,080

To Bills Payable A/c

1,080

(Promissory note received from Bansal Traders)

2010

Dec.28

Purchases A/c

Dr.

1,800

To Bansal Traders

1,800

(Goods bought from Bansal Traders list price Rs

2,000 at 10% trade discount)

2010

Dec.28

Bansal Traders

Dr.

1,800

To Bills Payable A/c

1,800

(Promissory note issued to Bansal Traders)

2010

Dec.31

Purchases A/c

Dr.

4,500

To Bansal Traders

4,500

(Goods bought from Bansal Traders of list price Rs

5,000 at 10% trade discount)

2010

Dec.31

Bansal Traders

Dr.

4,500

To Bills Payable A/c

4,500

(Promissory note issued to Bansal Traders)

2011

Jan.23

Bills Payable A/c

Dr.

900

To Cash A/c

900

(The first promissory note discharged on its due date)

2011

Jan.28

Bills Payable A/c

Dr.

1,080

To Bank A/c

1,080

(The second promissory note discharged on its due

date)

2011

Jan.30

Bills Payable A/c

Dr.

1,800

To Cash A/c

1,800

(The third promissory discharged by paying Rs

1,800 to Dream Soaps)

2011

Feb.02

Bills Payable A/c

Dr.

4,500

To Bank A/c

4,500

(The fourth promissory note discharged by paid Rs 4,500 to Bank)

 

In the books of Mohan Traders

BansalTrader’s Account

Dr.

Cr.

Date

Particulars

J.F.

Amount Rs

Date

Particulars

J.F.

Amount Rs

2010

2010

Dec.21

Bills Payable

900

Dec.21

Purchases

900

Dec.26

Bills Payable

1,080

Dec.26

Purchases

1,080

Dec.28

Bills Payable

1,800

Dec.28

Purchases

1,800

Dec.31

Bills Payable

4,500

Dec.31

Purchases

4,500

8,280

8,280


Q9 :Narayanan purchased goods for Rs 25,000 from Ravinderan on Feb. 01, 2006. Ravinderan drew upon Narayanan a bill of exchange for the same amount payable after 30 days. On the due date Narayanan dishonoured his acceptance. Pass the necessary journal entries in the books of Ravinderan and Narayanan in following cases:
When the bill was retained by Ravinderan with him till the date of its maturity.
When the bill was discounted by Ravinderan immediately with his bank @ 6% p.a.
When the bill was endorsed to his creditor Ganeshan.
When the bill was sent by Ravinderan to his bank for collection a few days before it maturity.
Answer:
Case (i) : When the bill was retained by Ravinderan with him till the date of its maturity

Books of Ravinderan

Journal

Date

Particulars

L.F.

Debit Amount Rs

Credit Amount Rs

2011

Feb.01

Narayanan

Dr.

25,000

To Sales A/c

25,000

(Goods sold to Narayanan)

Feb.01

Bills Receivable A/c

Dr.

25,000

To Narayanan

25,000

(Narayanan’s acceptance received for 30 days)

Mar.05

Narayanan

Dr.

25,000

To Bills Receivable A/c

25,000

(Narayanan failed to meet his

acceptance and bill dishonoured)

 

Books of Narayanan

Journal

Date

Particulars

L.F.

Debit Amount Rs

Credit Amount Rs

2011

Feb.01

Purchases A/c

Dr.

25,000

To Ravinderan

25,000

(Goods bought from Ravinderan)

Feb.01

Ravinderan

Dr.

25,000

To Bills Payable A/c

25,000

(Ravinderan’s bill accepted)

Mar.05

Bills Payable A/c

Dr.

25,000

To Ravinderan A/c

25,000

(Bill dishonoured on maturity)

Case (ii) : When the bill was discounted by Ravinderan immediately with his bank @ 6% p.a.

Books of Ravinderan

Journal

Date

Particulars

L.F.

Debit Amount Rs

Credit Amount Rs

2011

Feb.01

Narayanan

Dr.

25,000

To Sales A/c

25,000

(Goods sold to Narayanan)

Feb.01

Bills Receivable A/c

Dr.

25,000

To Narayanan

25,000

(Narayanan’s acceptance received)

Feb.01

Bank A/c

Dr.

24,875

Discount A/c

Dr.

125

To Bills Receivable A/c

25,000

(Narayanan’s acceptance got discounted with

bank @ 6% p.a.)

Mar.05

Narayanan

25,000

To Bank A/c

25,000

(Narayanan’s acceptance dishonoured)

 

Books of Narayanan

Journal

Date

Particulars

L.F.

Debit Amount Rs

Credit Amount Rs

2011

Feb.01

Purchases A/c

Dr.

25,000

To Ravinderan

25,000

(Goods bought from Raivnderan)