Bills of Exchange: Meaning, Parties, Features, Maturity & Accounting Entries

What Is a Bill of Exchange?

A bill of exchange is a written instrument containing an unconditional order directing a specified person to pay a specified sum to a specified person or order according to its terms.

Parties to a Bill

The main parties are drawer, drawee and payee. After acceptance, the drawee becomes the acceptor.

Important Features

A bill contains a payment order, amount, parties, date and payment terms. It creates a documented credit arrangement and evidence of the obligation.

Maturity

Maturity is the date on which the amount becomes payable according to the applicable terms. Students should consider the period, date of acceptance and rules prescribed in their syllabus.

Accounting Treatment

Entries depend on whether the business is drawer, drawee, holder or endorser and on what happens after acceptance. Common situations include retention, discounting with a bank, endorsement and dishonour.

Practical Example

Suppose A sells goods to B on credit and draws a bill on B for ₹30,000, which B accepts. A records the bill receivable and B records the corresponding liability according to the applicable treatment. Subsequent entries depend on what happens to the bill.

Dishonour

If the bill is not paid on maturity, it is dishonoured. Appropriate entries are passed to restore the amount due and record related charges where applicable.

Exam Tips

Make a party diagram before solving a problem. Identify drawer, drawee and payee, then determine who holds the bill and what event has occurred.

Quick Revision

Key terms: drawer, drawee, acceptor, payee, maturity, discounting, endorsement and dishonour.

FAQs

### Who accepts a bill? The drawee accepts the bill and becomes the acceptor.

### What happens on dishonour? The bill is not paid on maturity and appropriate accounting entries are passed.

Final Takeaway

Understanding the parties and sequence of events is the key to solving bills of exchange questions.