NCERT Solutions for Class 11 Accountancy Financial Accounting Part-1 Chapter 8

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

NCERT Solutions for Class 11 Accountancy Financial Accounting Part-1 Chapter 8 – 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 1^st March, 2011 and payable after one month; its maturity date is 4^th 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 1^st March, 2011 and is accepted by the drawee on 5^th March, 2011; its maturity date is 8^th April. In this case, the date of the bill starts from 5^th March and not from 1^st 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 bank@12% 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)

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 12^th July and its due date is 12^th August, then after adding 3 days of grace the maturity day is 15^th August. However, as 15^th August is a national holiday; so, 14^th August becomes the payment day.
If a bill is drawn on 1^st May and the maturity period is of one month, then the due date is 1^st June. After adding 3 days of grace, the payment date becomes 4^th June. However, if 4^th June happens to be a Sunday, then the payment will be made on 3^rd 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 1^st May and is payable after 15 days, then, after adding 3 days of grace period, the due date becomes 18^th May. However, if a national strike is declared on 18th May, then 19^th 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)

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 Bhagwanâ€“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 Kartarâ€“ 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

Credit

Amount

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