Accounting · Bills of Exchange and Promissory Notes

Accommodation Bills: Meaning, Journal Entries and Solved Examples

Updated 1 October 2026 · Fact-checked

An accommodation bill is a bill drawn and accepted to give financial help, not to settle a sale of goods. The drawer usually discounts it with the bank and shares the proceeds with the acceptor. Record it through personal accounts, bear the discount in the agreed ratio, and each party funds their own share at maturity.

Understand Accommodation Bills

A normal trade bill comes from a real sale of goods. The seller draws it, the buyer accepts it, and the bill is the buyer's promise to pay for the goods.

An accommodation bill has no sale behind it. Two parties agree that one will draw a bill and the other will accept it, only so that cash can be raised. The drawer gets the bill, usually discounts it with a bank, and shares the cash with the acceptor. Each party then uses his share of the money.

The bill is still a valid bill. The bank sees only a signed bill, and the acceptor is legally liable to pay it at maturity. So the two parties agree in advance that each will bear his own share of the bill amount. At maturity the drawer sends the acceptor his share of the bill amount, and the acceptor pays the full amount to the bank or holder.

Because there is no sale or purchase, you never touch Sales or Purchases. Everything goes through Bills Receivable, Bills Payable, Bank, Discount and the other party's personal account. The discount is the cost of raising the money, so it is shared between the two parties in the agreed ratio. This is usually the same as the proceeds ratio, but the question may state a different one.

Trade bill vs accommodation bill: a trade bill rests on a real sale of goods and creates a debtor-creditor relationship for that sale. An accommodation bill rests on mutual help, the proceeds are shared, and the personal accounts show only the financing arrangement.

Key rules to remember

Discount on bill: Discount = Bill amount × Rate of discount × Time ÷ 12 (time in months); Use the full bill amount, not the amount you receive. Time runs from the discounting date to the due date.
Net proceeds: Net proceeds = Bill amount − Discount; This is the cash the drawer actually receives from the bank.
Sharing the proceeds: Each party's share of proceeds = Net proceeds × his share ratio; Use the ratio given in the question. If none is given, assume equal sharing and state your assumption.
Sharing the discount: Each party's discount = Total discount × his share ratio; Use the agreed discount ratio. It is usually the same as the proceeds ratio, but not always. Check: if the same ratio is used for both proceeds and discount, each party's share of bill amount − share of proceeds = share of discount. The check holds only when the same ratio is used for both.
Remittance at maturity: Drawer sends acceptor = Drawer's share of the bill amount; The acceptor pays the full bill to the bank. The drawer's share of the bill amount is Bill amount × drawer's ratio.
Journal entries (drawer discounts, books of drawer A): Bills Receivable Dr, To B | Bank Dr and Discount Dr, To Bills Receivable | B Dr, To Bank (B's share of proceeds) | B Dr, To Discount (B's share of discount) | B Dr, To Bank (A's share at maturity); B's account in A's books should end at nil.
Journal entries (books of acceptor B): A Dr, To Bills Payable | Bank Dr, To A (share received) | Discount Dr, To A (B's discount share) | Bank Dr, To A (A's share at maturity) | Bills Payable Dr, To Bank; A's account in B's books should end at nil.

How to solve Accommodation Bills questions

Use this order for any accommodation bill question. Decide whose books are asked for first, then follow the cash.

1Identify the drawer, the acceptor, who discounts the bill, and the sharing ratio. If the ratio is not given, assume equal sharing and write that assumption.
2Calculate the discount using the bill amount, rate and unexpired period. Then find net proceeds = bill amount − discount.
3Split net proceeds in the given ratio and the discount in the agreed discount ratio (usually the same ratio). If the same ratio is used for both, check that each party's share of the bill amount less his share of proceeds equals his share of discount.
4Write the entries in the drawer's books: bill received, bill discounted, share of proceeds sent to acceptor, acceptor's share of discount charged to him, and the drawer's share remitted at maturity.
5Write the entries in the acceptor's books: bill accepted, share of proceeds received, own discount, drawer's share received at maturity, and payment of the bill.
6Never use Sales or Purchases. Narrate each entry briefly, for example: Being accommodation bill drawn on B and discounted.
7Post to the personal account of the other party in each set of books. It must close at nil. If it does not, find the slip before you move on.

Quickest way: Share table and nil-balance check

When to use it: Use when the question gives a bill amount, a discount and a sharing ratio and asks for journal entries or the amounts remitted. It saves you from recalculating mid-answer.

Make a small table with two columns, A and B. Rows: share of bill amount, share of proceeds, share of discount.
Fill it in first. If proceeds and discount use the same ratio, then for A and B, share of bill amount = share of proceeds + share of discount. If this fails for either, fix it before writing entries. If the discount ratio differs, this check does not apply.
Write the drawer's entries from the table. The cash sent to the acceptor at discounting is his share of proceeds. The cash sent at maturity is the drawer's share of the bill amount.
Write the acceptor's entries as the mirror image: what the drawer credits, the acceptor debits, and the other way round.
Close by checking that the personal account of the other party is nil in both sets of books.

Common mistakes in Accommodation Bills

Passing entries through Sales or Purchases
Students copy the trade-bill entries they have already learned.
Fix: Remember there is no goods transaction. Use only Bills Receivable or Bills Payable, Bank, Discount and the other party's account.
Showing the whole discount as the drawer's expense
The bank deducts discount from the drawer, so students stop there.
Fix: Discount is the shared cost of the funds. Charge the acceptor his share in the agreed discount ratio, which is usually the same as the proceeds ratio.
Remitting the full bill amount to the acceptor at maturity
The acceptor must pay the full amount to the bank, so students assume the drawer sends it all.
Fix: The acceptor already received his share of the proceeds earlier. The drawer sends only the drawer's share of the bill amount.
Sending the acceptor his share of the bill amount instead of his share of the net proceeds at discounting
Students ignore the discount deduction while splitting cash.
Fix: Split net proceeds, not the face value. The bank pays the drawer only the net amount.
Mixing up the acceptor's entry for acceptance
Students create Bills Payable but debit Purchases or Bank.
Fix: The acceptor debits the drawer's personal account and credits Bills Payable. Money moves only when the drawer sends his share.
Leaving the personal account with a balance
One of the shares, usually the discount, is missed.
Fix: After posting, total the personal account. If it is not nil, one share is missing or wrong.

Worked examples

Example 1

On 1 January, A draws a 3-month bill for ₹60,000 on B for mutual accommodation, and B accepts it. A discounts the bill with his bank immediately for ₹58,800. A and B share the proceeds equally. At maturity, A remits his share of the bill amount to B, and B meets the bill. Pass journal entries in the books of A and B.

Show the solution

Discount = ₹60,000 − ₹58,800 = ₹1,200. Net proceeds = ₹58,800.
Equal sharing: each party gets ₹29,400 of proceeds and bears ₹600 of discount. Each party's share of the bill amount is ₹30,000. Check: ₹30,000 − ₹29,400 = ₹600.
Books of A. Bills Receivable A/c Dr ₹60,000, To B ₹60,000 (bill drawn and accepted).
Bank A/c Dr ₹58,800 and Discount A/c Dr ₹1,200, To Bills Receivable A/c ₹60,000 (bill discounted).
B A/c Dr ₹29,400, To Bank A/c ₹29,400 (B's share of proceeds sent).
B A/c Dr ₹600, To Discount A/c ₹600 (B's share of discount charged).
B A/c Dr ₹30,000, To Bank A/c ₹30,000 (A's share remitted to B at maturity).
Check: B's account in A's books is credited ₹60,000 and debited ₹29,400 + ₹600 + ₹30,000 = ₹60,000. It is nil.
Books of B. A A/c Dr ₹60,000, To Bills Payable A/c ₹60,000 (bill accepted).
Bank A/c Dr ₹29,400, To A A/c ₹29,400 (share of proceeds received).
Discount A/c Dr ₹600, To A A/c ₹600 (B's share of discount).
Bank A/c Dr ₹30,000, To A A/c ₹30,000 (A's share received at maturity).
Bills Payable A/c Dr ₹60,000, To Bank A/c ₹60,000 (bill paid at maturity).
Check: A's account in B's books is debited ₹60,000 and credited ₹29,400 + ₹600 + ₹30,000 = ₹60,000. It is nil.

Answer: A's cost of funds is ₹600 and B's cost is ₹600. A sends B ₹29,400 at discounting and ₹30,000 at maturity. B pays ₹60,000 to the bank. Both personal accounts close at nil.

Example 2

On 1 April, X draws a 3-month bill for ₹50,000 on Y, and Y accepts it for mutual accommodation. X discounts it with his bank at 12% per annum. The proceeds and discount are shared by X and Y in the ratio 3 : 2. Calculate the amounts and pass entries in the books of Y.

Show the solution

Discount = ₹50,000 × 12% × 3 ÷ 12 = ₹1,500. Net proceeds = ₹50,000 − ₹1,500 = ₹48,500.
Ratio 3 : 2 (X : Y). Proceeds: X ₹29,100, Y ₹19,400. Discount: X ₹900, Y ₹600.
Share of bill amount: X ₹30,000, Y ₹20,000. Check X: ₹30,000 − ₹29,100 = ₹900. Check Y: ₹20,000 − ₹19,400 = ₹600.
Y's books. X A/c Dr ₹50,000, To Bills Payable A/c ₹50,000 (bill accepted).
Bank A/c Dr ₹19,400, To X A/c ₹19,400 (Y's share of proceeds received).
Discount A/c Dr ₹600, To X A/c ₹600 (Y's share of discount).
At maturity, X remits his share of the bill amount: Bank A/c Dr ₹30,000, To X A/c ₹30,000.
Bills Payable A/c Dr ₹50,000, To Bank A/c ₹50,000 (bill paid).
Check: X's account in Y's books is debited ₹50,000 and credited ₹19,400 + ₹600 + ₹30,000 = ₹50,000. It is nil.

Answer: Discount ₹1,500; net proceeds ₹48,500. Y receives ₹19,400 at discounting, bears ₹600 of discount, receives ₹30,000 from X at maturity, and pays ₹50,000 to the bank.

Exam tips

Write the sharing table (share of bill amount, proceeds and discount) at the top of your answer. It gets method marks even if you slip later.
Always give a narration after each entry. In subjective papers, narrations show you understand that the bill is for accommodation.
State your assumption clearly if the question does not give a sharing ratio, and use equal sharing.
Read carefully who discounts the bill and who sends money to whom. Questions vary this, so do not rely on a memorised pattern.
Finish with the nil-balance check on the personal account. It catches most errors in under a minute.

Practice questions from Bills of Exchange and Promissory Notes

Accommodation Bills: frequently asked questions

What is the difference between a trade bill and an accommodation bill?

A trade bill comes from a real sale of goods and settles that debt. An accommodation bill has no sale behind it and is drawn only to raise money for one or both parties. In accounting, trade bills affect Sales or Purchases, while accommodation bills use only personal accounts and bill accounts.

Who bears the discount on an accommodation bill?

The discount is a cost of raising the money, so it is shared by the parties who use the money. It is shared in the agreed ratio, which is usually the same as the proceeds ratio. If the question gives a different discount ratio, follow the question.

What does the drawer send the acceptor at maturity?

The drawer sends the acceptor his own share of the bill amount. The acceptor already used his share of the proceeds earlier and pays the full bill to the bank. So the drawer funds only his part of the liability.

Do I use Sales or Purchases in accommodation bill entries?

No. There is no sale or purchase of goods. Use Bills Receivable or Bills Payable, Bank, Discount and the personal account of the other party.