Accounting for Negotiable Instrument

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Accounting for Negotiable Instruments

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Accounting for Negotiable InstrumentsCHAPTER AT A GLANCE Meaning of Negotiable Instruments Bill of Exchange or Hundi Promissory Note Distinction between Bill of Exchange and Promissory

Note Cheque Basic Terms Associated with Bill of Exchange Records of Bills of Exchange or Promissory Note


Accounting for Negotiable InstrumentsCHAPTER AT A GLANCE (Chapter – 2) Accounting Treatment of Bills of Exchange Renewal of Bills of Exchange Insolvency Retiring the Bill Under a Rebate


Accounting for Negotiable InstrumentsMeaning of Negotiable InstrumentsMEANING Negotiable Instruments are the instruments of credit

often used to facilitate trade and commerce. These instruments are commonly known as bills of

exchange, promissory notes, and cheques. The main feature of these instruments is that they

contain an unconditional order or undertaking to pay the specified amount on the specified date.

These instruments are governed by the Negotiable Instruments Act, 1881.


Accounting for Negotiable InstrumentsMeaning of Negotiable InstrumentsThe Negotiable Instruments Act, 1881 has defined a negotiable instrument as Negotiable Instrument means a Bill of Exchange, Promissory Note or Cheque Payable either to bearer or to order


Accounting for Negotiable InstrumentsBILL OF EXCHANGE OR HUNDIMEANING (Section 5 of the Negotiable Instruments Act, 1881) A Bill of Exchange is 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


Accounting for Negotiable InstrumentsBILL OF EXCHANGE OR HUNDIAcceptance of the Bill A bill drawn by the drawer must be accepted by the drawee to make it a legal document.

Acceptance of the bill will be a proof of the willingness of the drawee

that he agrees with the terms and conditions of the bill.


Accounting for Negotiable InstrumentsBILL OF EXCHANGE OR HUNDIExample On 1st April, 2010 K of Kolkata purchased goods from D of Delhi on credit for which D draws a bill on K for Rs.50,000 for 3 months. The bill is duly accepted by K.

Specimen of a Bill of Exchange


Accounting for Negotiable InstrumentsBILL OF EXCHANGE OR HUNDIFeatures of Bill of Exchange are A bill of exchange is a written order. It is drawn and signed by the maker, i.e., drawer of the bill. It is an unconditional order to a person, i.e., drawee, to pay the specified amount. The drawee must accept it to make it of value. The specified amount is payable to the person named in

the bill or to his order or to the bearer. It specifies the date by which the amount should be paid. It is accepted by the drawee.


Accounting for Negotiable InstrumentsBILL OF EXCHANGE OR HUNDIParties to a Bill of Exchange A bill of exchange has three partiesI. DrawerII. DraweeIII. Payee


Accounting for Negotiable InstrumentsBILL OF EXCHANGE OR HUNDI(i) The Drawer The drawer is the person who makes or writes the Bill of exchange. He is a person who has granted credit to the person on whom the bill of exchange is drawn. In the specimen example, D is the drawer.


Accounting for Negotiable InstrumentsBILL OF EXCHANGE OR HUNDI(ii) The Drawee The drawee is the person on whom the bill of exchange is drawn for his acceptance. He is a person to whom credit has been granted by the drawer of the bill of exchange. In the specimen example, K is the drawer.


Accounting for Negotiable InstrumentsBILL OF EXCHANGE OR HUNDI(iii) The Payee The payee is the person named in the bill of exchange to whom the amount is to be paid. Payee may be the drawer himself or a third person.


Accounting for Negotiable InstrumentsBILL OF EXCHANGE OR HUNDITypes of Bill of ExchangeFrom accounting point of view, Bills of Exchange are of two typesi. Trade Billii. Accommodation Bill


Accounting for Negotiable InstrumentsBILL OF EXCHANGE OR HUNDI(i) Trade Bill Where a Bill of Exchange is drawn and accepted for a

trade transaction, it is called ‘Trade Bill’.(ii) Accommodation Bill Where a Bill of Exchange is drawn and accepted for

mutual help, it is called ‘Accommodation Bill’.


Accounting for Negotiable InstrumentsBILL OF EXCHANGE OR HUNDIAdvantages of Bills of Exchange(i) Purchase and Sale of Goods on Credit. With the help of these, goods can be sold and

purchased on credit without difficulty since the bills of exchange contain an unconditional promise to pay.

(ii) Discounting Facility The bills of exchange can be discounted at a bank so

that the enterprise allowing the credit can receive the amount immediately without the debtor having to pay before time.


Accounting for Negotiable InstrumentsBILL OF EXCHANGE OR HUNDIAdvantages of Bills of Exchange(iii) Easy to Recover the Amount If a bill of exchange is dishonoured, it is easier to recover the amount legally than in the case of an ordinary debt.(iv) Endorsement. A bill of exchange can be endorsed to other parties;

thus they serve almost the same purpose as cash.


Accounting for Negotiable InstrumentsBILL OF EXCHANGE OR HUNDIAdvantages of Bills of Exchange(v) Certainty as to Payment. The date of payment is certain; the enterprise which

has to pay and that which has to receive the amount can thus plan cash management.

(vi) No Reminder to Debtor The recovery of the debt is possible without having to

remind the debtor.


Accounting for Negotiable InstrumentsBILL OF EXCHANGE OR HUNDIAdvantages of Bills of Exchange(vii) Convenient Mean of Trade Remittance. Bills of exchange are a convenient mean of making and

receiving payment as currency need not be carried. (viii) Valid Evidence of Debt. A bill of exchange is a written acknowledgement of

debt duly signed and stamped. It is a legal document under the Negotiable Instruments Act, 1881.


Accounting for Negotiable InstrumentsBILL OF EXCHANGE OR HUNDIDisadvantages of Bills of Exchange Getting acceptance sometimes becomes time consuming. If bill is dishonored, financial planning of drawee or

payee may be disturbed. In case of dishonor of bill, legal procedures, i.e., noting

and protesting have to be followed.


Accounting for Negotiable InstrumentsPROMISSORY NOTEMEANING (Section 4 of the Negotiable Instruments Act, 1881) A promissory note is an instrument in writing (not being a bank note or a currency note) containing an unconditional undertaking signed by the maker to pay a certain sum of money only to or to the order of a certain person or to the bearer of the instrument


Accounting for Negotiable InstrumentsPROMISSORY NOTEFeatures of a Promissory Note A promissory note is an unconditional written undertaking to pay the specified amount. It is drawn and signed by the maker, i.e., promisor. It specifies the name of the payee, i.e. , to whom payment is to be made. The specified amount is payable to the specified person or to his order or to the bearer. Proper stamp duty is paid on the promissory note.


Accounting for Negotiable InstrumentsPROMISSORY NOTEParties to a Promissory Note. A promissory note has two parties The Maker is the person who makes the promise to

pay the amount. It is a person who has availed credit. The Payee is the person to whom payment is to be

made. It is a person who has granted credit.

SPECIMEN OF A PROMISSORY NOTE


Accounting for Negotiable InstrumentsDISTINCTION BETWEEN BILL OF EXCHANGE AND PROMISSORY NOTE

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Basis Bill of Exchange Promissory NoteDrawer The creditor is the

drawer.The debtor is the drawer.

Order and Promise

It contains an order to pay.

It contains a promise to pay.

Acceptance It needs acceptance by the drawee.

It does not need acceptance by the drawee.

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Basis Bill of Exchange Promissory NoteParties It has three parties

namely—the drawer, the Drawee and the payee.

It has two parties namely—the promisor and the Payee

Liability The liability of the drawer arises only if the Acceptor does not pay

The promisor has the primary liability to pay

Noting andProtesting

In case of dishonour, it would be better to get it Noted for non-payment.

In this case noting is necessary.

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Basis Bill of Exchange Promissory NoteCopies In case of foreign bills,

three copies are made But otherwise only one copy is prepared.

Only one copy is prepared whether it is foreign or Local.

Stamp The bill payable on demand need not be stamped But otherwise stamps would be necessary

This has to be stamped in any case.

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Accounting for Negotiable InstrumentsCHEQUEMEANING (Section 6 of the Negotiable Instruments Act, 1881) A cheque is a bill of exchange drawn on a specified banker and not expressed to be payable otherwise than on demand and it includes the electronic image of a truncated cheque and a cheque in the electronic form


Accounting for Negotiable InstrumentsCHEQUE A cheque is a kind of bill of exchange which is drawn on a specified banker and payable on demand. The Negotiable Instruments Act, 1881 (as amended in

the year 2002) has recognised an electronic cheque also as a cheque.

A cheque is a bill of exchange with two added features A cheque is always drawn on a specified bank, and A cheque is always payable on demand.


Accounting for Negotiable InstrumentsCHEQUEFeatures of a Cheque It is an unconditional written order by the maker to

pay. The written order is to a specified bank. It specifies the amount to be paid in figures and words. It specifies the person to whom payment is to be made.


Accounting for Negotiable InstrumentsCHEQUEParties to a Cheque The Drawer is the person who makes the cheque. The Drawee is the bank on which the cheque is drawn

and who is directed to pay the amount of the cheque. The Payee is the person to whom the amount specified

in the cheque is payable.


Accounting for Negotiable InstrumentsBASIC TERMS ASSOCIATED WITH BILLS OF EXCHANGE

Drawer Drawer is the person who makes or writes the bill of

exchange. He is a creditor of the person on whom the bill of exchange is shown.



Drawee Drawee is the person on whom the bill of exchange is

drawn for acceptance. He is the person to whom credit has been granted by

the drawer.



Payee Payee is the person named in the bill of exchange to

whom the amount is payable.



Endorsement Endorsement means transfer of bill of exchange or

promissory note to another person. The person receiving the bill of exchange or promissory note becomes authorized to receive the payment.



Endorser Endorser is the person who transfers the bill of exchange or promissory note in favour of other person.



Endorsee Endorsee is the person to whom the bill of exchange or

promissory note is endorsed.



Bill at Sight or Demand. The bills which are drawn ‘On demand’ and ‘At sight’

are payable on presentation to the drawee or acceptor.



Bill After Date Bill after date is the bill in which the period is counted

from the date of drawing of the bill after sight, the period is counted from the date of acceptance of

the bill.



Tenor or Tenure of Bill. Bills may be drawn payable at sight, on demand, on

presentation, after date, and so on. The period intervening between the date on which a

bill is drawn and that on which it becomes due is called tenure of the bill.



Days of Grace Days of grace are three extra days added to the period

of bill. It is a custom to add the days of grace.



Due Date. Due date is the date on which the payment of the bill is due. It is also known as the date of maturity. It is calculated

by adding days of grace.



While calculating the Due Date or maturity date of a bill, the following points must be borne in mind: Days of grace is not allowed when the bill is payable

‘on demand’; or ‘at sight’. When the period of the bill is stated in days the calculation of the maturity date will be in days (which

includes the date of payment but exclude the date of transaction).



Example A bill dated 1st January, 2010 is payable 60 days after

date. The maturity date of the bill will be 5th March, 2010. (30 days of January + 28 Days of February + 2 days of

March + 3 days of grace)



When the period of the bill is stated in months, the calculation of maturity date will be in terms of calendar months, ignoring the number of days in a month.

Example A bill dated 1st January, 2010 is payable three months after date. The maturity date of the bill will be 4th April, 2010.



If the maturity date falls on a day which is a ‘public holiday’ the maturity date of the bill shall be preceding business day.

Example If the maturity date of a bill is 26th January, 2010 (Republic Day), it falls due on 25th January, 2010.



Dishonour of a Bill Dishonour means that the bill is not paid by the drawee on it’s due date. It arises when the acceptor refuses or is unable to pay

the amount of bill, i.e., bill of exchange, promissory note or cheque.



Notary Public and Noting Charge. Notary Public is an officer appointed by the Central or

State Government to exercise the power and functions relating to noting

and protesting of negotiable instruments for dishonour. Noting authenticates the fact of dishonour.



Noting Charges. Noting Charges is the fee paid to the Notary Public for

noting and protesting the bill of exchange of it’s dishonour.



Renewal of Bill. When the acceptor of a bill is not in a position to meet

the bill on due date, he may, with the consent of the holder accept a fresh bill in place of the old bill (after cancelling the old bill), it is called renewal of a bill. The fresh bill may include interest for the extended

period or it may be paid separately, stamp duty and other incidental expenses incurred by the holder.



Retirement of Bill. When the drawee pays the bill before its due date, it is called Retirement of a Bill. The holders allow him a rebate of certain amount calculated at a certain rate per cent per annum, from the date of retirement to the date of maturity.



Holder The holder of a negotiable instrument, i.e., bill of exchange, promissory note or cheque is a person entitled in his own name to the possession

thereof and to receive or recover the amount due thereon from the parties to it.



Holder in Due Course A person who acquires the negotiable instrument, i.e., bill of exchange, promissory note or cheque in good faith, for value and before the date of maturity is a holder in due course.



Unless otherwise provided, a holder will be assumed to be a holder in due course. The main advantage of being in such a position is that he acquires a good title even if the title of the transferor was defective.



Suppose, a bill of exchange made payable to A is endorsed by him in favour of B who acquired it by duping A. B, then passes it on to C who is not aware of what B did to get the bill and who gets it for a consideration and before the date of

maturity. C will be entitled to receive the payment. A will have no claim against him.


Accounting for Negotiable InstrumentsRECORD OF BILLS OF EXCHANGE OR PROMISSORY NOTE

When sale made on credit and Bills Of Exchange is made and accepted from customer(i) For sale of goods on credit Customer/Debtor...Dr

To Sales A/c(Being the goods sold on credit)



(ii) On drawing, accepting and receipt of the bill Bill Receivable A/c ...Dr.

To Customer/Debtor(Being the bill of exchange received from the debtor credited to his account)



Entries in the Books of the Drawee or Acceptor/Debtor(i) For purchase of goods on credit Purchases A/c ...Dr.

To Supplier/Creditor(Being the goods purchased on credit from …..)



(ii) When acceptance on bill is given Supplier/Creditor ...Dr.

To Bills Payable A/c(Being the creditor paid by accepting Bills Payable)


Accounting for Negotiable Instruments2.07 RECORD OF BILLS OF EXCHANGE OR

PROMISSORY NOTE(iii) On payment of the bill at maturity The acceptor is not concerned with the bill till the date of maturity. On maturity, it will be presented for payment. If payment is made, i.e., the bill is honored, the entry will beBills Payable A/c ...Dr.

To Cash (or Bank) A/c(Being the bill payable paid on due date) It is to be noted that the account to be debited is the Bills Payable Account and not the account of the party receiving the payment.


Accounting for Negotiable InstrumentsACCOUNTING TREATMENT OF BILL OF EXCHANGE

The holder of the bill of exchange has following options to deal with the bill Retain the bill till the date of maturity; Discount the bill with the bank; Endorse the bill in favour of a creditor; and Send the bill for collection.



1. When the Bill is Retained Till the Date of MaturityWhen the bill is retained till the date of maturity, the drawer receives the money from the drawer on the due date. The entry is Cash or Bank A/c ...Dr. [With the amount of the bill]

To Bills Receivable A/c [With the amount of the bill]

(Being the amount received against the billof exchange on due date)



2. When the Bill is Discounted with the Bank When the holder of the bill takes amount from a bank

against the bill before the due date, it is known as discounting of the bill. The bank charges an amount termed as ‘Discounting

Charges’. The charges depend upon the rate of interest and the

period of maturity



Example A bill for Rs. 10,000 payable after 3 months is discounted @ 6% p.a., the amount of discount will be Rs. 150, i.e., Rs. 10,000 x 6/100 x 3/12.



Accounting EntryWhen bill is discounted and Cash is received or credited to Bank AccountCash or Bank A/c ...Dr. [The amount of the bill less discount]

Discounting Charges A/c ...Dr. [The discount charged by the bank]

To Bills Receivable A/c [The full amount of the bill]

(Being the bill discounted with the bank)



Drawee’s Books. The acceptor or drawee is not affected by discounting of the bill and, therefore, does not make any entry in his books or in this regard. He will pay it to the holder of the bill (whosoever he may be) on maturity. Accounting EntryBills Payable A/c ...Dr.

To Cash or Bank A/c(Being the payment made to settle the bill payable)



3. When the Bill is Endorsed in Favour of a Creditor When the holder of a bill transfers the bill to a third party, the bill is said to have been endorsed or negotiated. The term endorsement or negotiation means the transfer of a bill of exchange or promissory note to another person. The person who endorses the instrument (bill) is called the endorser. The person to whom the instrument (bill) is endorsed is called the endorsee.



Accounting EntryIn the Books of Drawer or Person Receiving the BillCreditor ...Dr.

To Bills Receivable A/c(Being the Bills Receivable endorsed) Creditor’s account is debited because a liability has been paid and Bills Receivable Account is credited because Bills Receivable has been endorsed. As on the date of maturity, the payment will be received by the endorsee. Hence, at the time of payment, the endorser does not pass any entry in his books.



Acceptor’s Books. The acceptor of the bill does not pass entry relating to

endorsement of the bill. He will pay the amount on the due date to the holder

of the bill and record the following entryBills Payable A/c ...Dr.

To Cash or Bank A/c(Being the bill paid on maturity)



Endorsee’s Books From endorsee’s viewpoint, the transaction entered

into is Receiving a bill receivable from the endorser. The Journal entry isBills Receivable A/c ...Dr.

To Endorser(Being the Bill Receivable received from …… duly endorsed)



When the bill is honoured at maturity, the following entry is madeCash or Bank A/c ...Dr.

To Bills Receivable A/c (Being the amount received on endorsed bill on maturity)



4. When the Bill is Sent to the Bank for Collection The person receiving the bill of exchange, may retain the bill and receive the amount on maturity. But in order to ensure safety, he may send it to his bank with instructions that the bill be retained and realised on its due date. The bank will credit the account of the customer on realisation of amount. If the bill is sent to the bank with such instructions, it is known as bill sent for collection.



Accounting EntryBills Sent for Collection A/c ...Dr.

To Bills Receivable A/c (Being the bill sent to bank for collection on due date)When the amount is realised, the entry is Bank A/c ...Dr.

To Bills Sent for Collection A/c (Being the bill realised on due date by the bank) The balance in the Bills Sent for Collection Account is shown in Balance Sheet as an asset.



Dishonour of a Bill Dishonour of a bill means a situation when the acceptor of the bill refuses or is unable (say because of

insolvency) to pay the amount of the bill. In such a case, the holder of the bill can recover the

amount from the drawer or any of the endorsers. The holder of the bill may present the bill through a

Notary Public and get the dishonour of the bill noted. It is important but not necessary to present the bill

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Noting will consist of the following That the bill has been dishonored The date of the dishonour; The reason, if any, for the dishonour; and The fee charged by the Notary Public, i.e., Noting Charges.



Accounting Entries on Dishonour of a Bill If the bill is dishonoured, the party which endorsed the

bill is debited with the amount of the bill and noting charges (if paid),

since the endorsing party is now responsible for payment. The payment is claimed either by the bank or the endorsee and therefore, their account is credited.



Drawer’s Books The entry for the dishonour of the bill in the books of drawer would depend upon the circumstances of each case(i) When the bill is retained by the drawer till maturity and dishonoured on due dateDrawee ...Dr.

To Bills Receivable A/c [The amount of the bill]

To Cash or Bank A/c [Noting charges, if any]

(Being the bill dishonoured on maturity, Noting Charges Rs. ……… paid)



(ii) When the bill is discounted with bank and is dishonoured, Drawee ...Dr. [The amount of the bill and noting charges,

if any] To Cash or Bank A/c

(Being the payment made to bank and Drawee’s account debited on dishonour of bill)



(iii) When the bill is endorsed to the endorsee and is dishonoured, the entry will beDrawee ...Dr [The amount of the bill and noting charges, if any]

To Endorsee(Being the bill of ……….. dishonoured and thus its account is debited and Endorsee’s account is credited)



(iv) When the bill has been sent to the bank for collection and is dishonouredDrawee ...Dr.

To Bills Sent for Collection A/c [Amount of bill]

To Cash or Bank A/c [Amount of noting

charges, if any]

(Being the bill sent for collection dishonoured on maturity and was noted)



Note When a bill is sent to the banker for collection and

dishonoured, the bank returns the bill to the drawer and the drawer himself pays the noting charges.

In all the circumstances Drawee or Acceptor is debited to cancel the credit given to him at the time of

acceptance of the bill.



Drawee’s Books If the bill is dishonoured, the liability to the creditor concerned will be restored. In addition to the amount of the bill, noting charges, if paid for getting the bill noted, will also be payable to the creditor. Therefore, his account is credited with the amount of bill plus the noting charges, if any. The amount of the bill is debited to the Bills Payable Account and the amount of the noting charges is debited to Noting Charges Account.



The entry is Bills Payable A/c ...Dr. [Amount of the bill]

Noting Charges A/c ...Dr. [Noting charges, if any]

To Creditor [Amount of the bill plus

noting charges]

(.................................................)



It is important to note that if the drawee is declared insolvent on or before the due date,

the bill is deemed to have been dishonoured and all entries for dishonour will have to be passed in the

books of the concerned parties as given above.


Accounting for Negotiable InstrumentsRENEWAL OF BILL OF EXCHANGE Sometimes, an acceptor expresses his inability to meet

the bill on the due date and requests the holder, or the drawer, to substitute the old bill with a new one.

The purpose is to get an extension of time. If the drawer agrees, the old bill is cancelled and a new

bill is drawn and of course accepted by the drawee. This process is called Renewal of Bill.


Accounting for Negotiable InstrumentsRENEWAL OF BILL OF EXCHANGE In such cases, there is no need for getting the bill noted since the drawee himself makes a request for cancellation of the bill. Normally for drawer agreeing to the bills, the drawer

will charge interest for the extension of the time. The amount of interest may be paid in cash or included

in the amount of the new bill. The interest will depend on the amount of the bill, the

rate of interest and the period of the new bill.


Accounting for Negotiable InstrumentsRENEWAL OF BILL OF EXCHANGEEntries in the book of Account whenCancelling the Original Bill

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Drawer’s Books Drawee’s BooksDrawee ...Dr.To Bills Receivable A/c

Bills Payable A/c ...Dr.To Drawer

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Accounting for Negotiable InstrumentsRENEWAL OF BILL OF EXCHANGEEntries in the book of Account whenRecording Interest for the Extended Period

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Drawer’s Books Drawee’s BooksDrawee …Dr. To Interest A/c

Interest A/c ...Dr.To Drawer

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Accounting for Negotiable InstrumentsRENEWAL OF BILL OF EXCHANGEEntries in the book of Account whenPart Payment received/made

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Drawer’s Books Drawee’s BooksCash Or Bank A/c ...Dr. To Drawee

Drawer ...Dr. To Cash Or Bank A/c

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Accounting for Negotiable InstrumentsRENEWAL OF BILL OF EXCHANGEEntries in the book of Account whenNew Bill drawn/accepted

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Drawer’s Books Drawee’s BooksBills Receivable A/c ...Dr To Drawee

Drawer ...Dr To Bills Receivable A/c

It is also a possibility that the new bill may not be for the full amount since the drawer may be partly paid at the time of renewal.

In such a case, interest will be due only on the amount of the new bill.

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Accounting for Negotiable InstrumentsINSOLVENCY Insolvency means that the enterprise or person is unable to meet its or his liabilities. If the acceptor of a bill or the maker of a Promissory

Note becomes insolvent; the Bill of Exchange or the Promissory Note should be

treated as dishonoured because he is unable to make the payment of the bill and entry relating to dishonour of bill should be recorded.


Accounting for Negotiable InstrumentsINSOLVENCY Later a part of dues may be received from his estate. On receipt of amount, cash account is debited and the

personal account of the debtor is credited. The remaining amount is irrecoverable and, therefore,

is written off as a bad debt in the drawer’s books. The Drawee credits Unpaid or Deficiency Account or

Profit and Loss Account and debits Drawer’s Account in his books with the amount he is unable to pay.


Accounting for Negotiable InstrumentsINSOLVENCYAccounting TreatmentDishonour of the bill

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Drawer’s Books Drawee’s BooksSame entry as of Dishonour of the Bill

Same entry as of Dishonour of the Bill

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Accounting for Negotiable InstrumentsINSOLVENCYWhen a part payment is received as ‘Dividend’ from the insolvent’s estate.

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Drawer’s Books Drawee’s Books

Cash A/c ...Dr.Bad Debts A/c ...Dr.

To B

A ...Dr.To Deficiency Or Profit and Loss A/c

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Accounting for Negotiable InstrumentsRETIRING THE BILL UNDER A REBATE If the drawee or the acceptor wishes to pay the amount of the bill before the date of maturity, it is called Retiring the Bill. Usually the holder, in such a case, would be willing to

allow a deduction because of the interest involved. Such a deduction is called rebate. For the acceptor the rebate will be a gain and for the

holder a loss.


Accounting for Negotiable InstrumentsRETIRING THE BILL UNDER A REBATEThe entries to be made are accordinglyIn the Books of the AcceptorBills Payable A/c ...Dr. [The amount of the bill]

To Cash (or Bank) A/c [The actual amount paid]

To Rebate A/c [The amount of the rebate earned]

(Being the bill retired before the due date)


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