Accounting For Bills Of Exchange – Part 3: Bills Payable

July 25th, 2007 Comments off
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Bills Payable
As explained in Part 1,

1. The bill of exchange after it is accepted is known as bill receivable to the drawer and payable to the acceptor [ When a drawee accepts the bill and signs he/she is known as the acceptor. The acceptor is primarily liable on a bill to the drawer so long as the drawer retains the bill. When the bill is negotiated and transferred to a payee, the drawer than become liable on the bill as well as the acceptor.] Refer below for the Accounting entries for Bills Payable and a simple illustration to demonstrate how to pick up Bills Payable in the Ledger Accounts.

Accounting Entries For Bills Payable

Face value of bill of exchange accepted for payment to a creditor:
Creditor’s account XX
Bills Payable account XX
Face value of bill paid on maturity:
Bills Payable account XX
Bank account XX
Face value of bill returned:
Bills Payable account XX
Creditor’s account XX
Interest charged by customer due to return of old bill and re-issue new one:
Interest Payable account XX
Creditor’s account XX
Face value of new bill issued being face value of old one plus interest charged
Creditor’s account XX
Bills Payable XX


On 1/1/200X, A sold goods to B for $50,000 and drew a bill on B at four months in settlement. B accepted the bill. On 30/1/0X, A discounted the bill with the bank at 6% per annum. At maturity, B failed to meet his bill and the holder had recourse against A. On 1/5/0X, A drew and B accepted a new bill at three months for the amount of the original bill, plus interest at 12% per annum.

Question: Show the ledger accounts in B’s books.

Solution: In B’s Books:

Bills Payable Account

$ $
30/4 A’s account- Bills dishonored 50,000 1/1 A’s account-Bills accepted 50,000
1/5 A’s account 51,500

A’s Account

$ $
1/1 Bills Payable a/c- bill accepted 50,000 1/1 Purchases 50,000
1/5 Bills Payable Face value- $50,000 plus interest charged 51,500 30/4 Bills Payable a/c-Bills dishonored 50,000
1/5 Interest payable 1,500

Interest Payable Account

$ $
1/5 A’s a/c-interest charged 1,500

Note:On maturity, the bank will present the bill to B. On its dishonor, the bank will hand the bill back to A and will debit A’s bank account with the face value of the bill. In A’s book, the amount is debited back to B’s account to show that B is still in debt.

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Financial Accounting


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