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Accounting For Bills Receivable(Part2/3)

Published by slang December 12th, 2007 in Bills Of Exchange

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

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