Accounting For Bills Of Exchange – Part 2: Bills Receivable

Bills Receivable

As explained in Part 1,

1. The bill of exchange after it is accepted is known as bill receivable to the drawer and bill 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.]

Below shows the accounting entries of Bills Receivable and an illustration on how to pick up the Bills Receivable in the Ledger Accounts.

Accounting Entries For Bills Receivable

	DR	CR
When the bill of exchange is received from the customer:
Bills Receivable account	XX
Customer’s account		XX

Bill paid on maturity by customer:
Bank account	XX
Bills Receivable account		XX

Where the bill has been discounted:
Discount Charges account	XX
Bills Receivable account		XX

Bill endorsed over to creditor
Creditor’s account	XX
Bills Receivable account		XX

Face value of bills dishonored where it has not been discounted or endorsed:
Customer’s account	XX
Bills Receivable account		XX

Face value of bills dishonored where It has been discounted with a bank:
Customer’s account	XX
Bank account		XX

Face value of bills dishonored where it has been endorsed over to a creditor:
Customer’s account	XX
Creditor’s account		XX

Face value of Bill returned:
Customer’s account	XX
Bills Receivable account		XX

Interest charged to customer as a result of returning old bill and issuing a new one:
Customer’s account	XX
Interest Receivable account		XX

Record with new bill amount being face value of old one plus interest charged
Bills Receivable account	XX
Customer’s account		XX

Illustration: 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 A’s books.

Solution: In A’s Books:

Bills Receivable Account

		$			$
1/1	B’s account	50,000	30/1	Bank-bill discounted	49,250
1/5	B’s account	51,500		Discount charges a/c	750

B’s Account

		$			$
1/1	Sales a/c	50,000	1/1	Bills Receivable a/c	50,000
30/4	Bank a/c	50,000	1/5	Bills Receivable a/c	51,150
1/5	Interest Receivable a/c	1,500

Bank Account

		$			$
30/1	Bills Receivable	49,250	30/4	B’s account -bill dishonored	50,000

Discount Charges Account

		$			$
30/1	B’s account	750

Interest Receivable Account

					$
			1/5	B’s a/c	1,500

See next article Part C on Accounting for Bills Payable

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