Accounting · Bills of Exchange and Promissory Notes

Accounting Treatment of Bills of Exchange in Books of Drawer and Drawee

Updated 1 October 2026

A bill of exchange is a written order by the drawer to the drawee to pay a fixed sum on a set date. The drawer records Bills Receivable and the drawee records Bills Payable on acceptance. On payment at maturity, cash is received or paid and the bill account is closed.

Understand Accounting Treatment in Books of Drawer and Drawee

A bill of exchange is a written, signed order. The drawer (the seller who is owed money) orders the drawee (the buyer who owes money) to pay a fixed sum on a fixed date to the drawer or to a named person. The bill becomes binding only after the drawee accepts it by signing.

Think of the bill as a debt turned into a document. Before acceptance, the debtor owes money on open credit. After acceptance, the debt is a bill. So the personal account of the debtor is closed and a bill account takes its place.

The two sides mirror each other. The drawer holds an asset, so it opens Bills Receivable A/c. This is an asset account: debit increases it and credit decreases it. The drawee has a liability, so it opens Bills Payable A/c. This is a liability account: credit increases it and debit decreases it. Some texts class both as personal accounts, but do not rely on that rule alone. Decide the entry by asking whether an asset or a liability is rising or falling.

A bill can follow different paths. The drawer may retain it till maturity, then collect cash. The bill may be dishonoured if the drawee fails to pay. At that point the debt revives, so the drawee's personal account is debited again in the drawer's books. In the drawee's books, Bills Payable is debited and the drawer's account is credited. Noting charges, if paid by the drawer, are usually recovered from the drawee.

The drawing of a bill needs no entry on its own. Entries are passed on acceptance. This page covers drawing, acceptance, retention till maturity and dishonour. Discounting, endorsement and renewal are separate topics.

Key rules to remember

Drawer: on acceptance of bill: Bills Receivable A/c Dr. To Debtor's (Drawee's) A/c; Passed when the drawee accepts the bill for a previously credit sale or old debt.
Drawee: on acceptance of bill: Creditor's (Drawer's) A/c Dr. To Bills Payable A/c; Mirror of the drawer's entry. Same amount, same date.
Drawer: on payment at maturity: Bank/Cash A/c Dr. To Bills Receivable A/c; Use Bank A/c if the amount is collected through the bank.
Drawee: on payment at maturity: Bills Payable A/c Dr. To Bank/Cash A/c; Closes the liability.
Drawer: on dishonour (no noting charges): Drawee's A/c Dr. To Bills Receivable A/c; Debt revives against the drawee.
Drawee: on dishonour: Bills Payable A/c Dr. To Drawer's A/c; Liability moves back from the bill to the drawer's personal account.
Noting charges on dishonour: Drawer: Drawee's A/c Dr. (bill amount + noting charges) To Bills Receivable A/c To Bank A/c (noting charges). Drawee: Bills Payable A/c Dr. Noting Charges A/c Dr. To Drawer's A/c; Noting charges are recoverable from the drawee when the drawee is liable for them. If the drawer bears them, debit Noting Charges A/c in the drawer's books instead.
Bill drawn on fresh credit sale (no earlier entry): Drawer: Bills Receivable A/c Dr. To Sales A/c. Drawee: Purchases A/c Dr. To Bills Payable A/c; Used when goods are sold and the bill is accepted straight away, with no earlier credit entry.

How to solve Accounting Treatment in Books of Drawer and Drawee questions

Use this order for any bills question. It works whether you are asked for one party or both.

1Identify whose books you must write. Drawer's books use Bills Receivable. Drawee's books use Bills Payable.
2Read the transaction. Check if the bill is for an existing debt or for a fresh sale or purchase. This decides whether Debtor/Creditor or Sales/Purchases is used.
3Write the date of each event: drawing, acceptance, maturity and dishonour. Add 3 days of grace to the due date to find the legal maturity date.
4Pass the acceptance entry first: Bills Receivable Dr. to Debtor for the drawer, Creditor Dr. to Bills Payable for the drawee.
5Pass the next event. If paid at maturity, record cash or bank. If dishonoured, reverse the bill and revive the personal account, adding any noting charges.
6Check that every entry has a date, a Dr./Cr. side, the correct amounts and a short narration.
7If asked, post to ledger accounts in the same order and balance them to confirm the bill account is nil.

Quickest way: Mirror-entry shortcut

When to use it: Use when the question asks for entries in both books or in one book with limited time.

Write the drawer's entry. Then flip the names to write the drawee's: Bills Receivable becomes Bills Payable, and Debtor becomes Creditor.
Memorise only three events: acceptance, maturity payment and dishonour.
For acceptance: the personal account is closed, the bill account is opened.
For payment: the bill account is closed, bank or cash moves.
For dishonour: the bill account is closed, the personal account is reopened.
Add noting charges only if the question mentions them. In the drawer's books, debit the drawee's account with the bill amount plus noting charges. In the drawee's books, debit Noting Charges A/c and credit the drawer's account.

Common mistakes in Accounting Treatment in Books of Drawer and Drawee

Passing an entry when the bill is only drawn, before acceptance.
Students think drawing creates the asset or liability.
Fix: Pass entries only on acceptance. A bill not yet accepted has no accounting effect.
Using Bills Payable in the drawer's books or Bills Receivable in the drawee's.
Confusion about which side owes and which side is owed.
Fix: Receivable means you will receive money (drawer). Payable means you will pay money (drawee).
Forgetting to revive the debtor's account on dishonour.
Students treat dishonour as a loss instead of a revived debt.
Fix: On dishonour, debit the drawee's account in the drawer's books and credit Bills Receivable. The debt is still owed.
Using the wrong due date by missing the three days of grace.
Students count only the stated period.
Fix: Add three days of grace to the end of the bill period. The result is the date of maturity, as in the Negotiable Instruments Act, 1881 for bills not payable on demand.
Leaving out noting charges or debiting them to the wrong account.
The charge looks like a separate small expense.
Fix: If the drawee bears the charge, add it to the amount debited to the drawee's account. Then credit Bank for the charge paid.
Writing the wrong amounts on dishonour when interest or part payment is involved.
Students copy the bill amount without reading the question.
Fix: Read for part payment. Debit Bank with the amount received, debit the drawee with the balance plus any noting charges, and credit Bills Receivable with the full bill amount (and Bank with any noting charges paid). Check that total debits equal total credits.

Worked examples

Example 1

On 1 January 2025, Ravi sold goods worth ₹50,000 to Sunil on credit. On 5 January, Ravi drew a 3-month bill on Sunil for the full amount. Sunil accepted it. Ravi retained the bill till maturity and received payment through his bank on the due date. Pass journal entries in the books of Ravi (drawer) and Sunil (drawee).

Show the solution

Credit sale on 1 January in Ravi's books: Sunil A/c Dr. ₹50,000 to Sales A/c ₹50,000. In Sunil's books: Purchases A/c Dr. ₹50,000 to Ravi A/c ₹50,000.
Acceptance on 5 January, Ravi's books: Bills Receivable A/c Dr. ₹50,000 to Sunil A/c ₹50,000.
Acceptance on 5 January, Sunil's books: Ravi A/c Dr. ₹50,000 to Bills Payable A/c ₹50,000.
Due date: 5 April plus 3 days of grace gives 8 April 2025.
Receipt on 8 April, Ravi's books: Bank A/c Dr. ₹50,000 to Bills Receivable A/c ₹50,000.
Payment on 8 April, Sunil's books: Bills Payable A/c Dr. ₹50,000 to Bank A/c ₹50,000.

Answer: Ravi: Bills Receivable Dr. ₹50,000 to Sunil on 5 January. Bank Dr. ₹50,000 to Bills Receivable on 8 April 2025. Sunil: Ravi Dr. ₹50,000 to Bills Payable on 5 January. Bills Payable Dr. ₹50,000 to Bank on 8 April 2025.

Example 2

Meera drew a bill for ₹40,000 on Kiran, who accepted it. Meera retained the bill till the due date. Kiran failed to pay, so the bill was dishonoured. Meera paid noting charges of ₹500 by bank, which Kiran has to bear. Pass entries in the books of both parties for dishonour only.

Show the solution

In Meera's books, the bill is cancelled and Kiran's debt revives. Add the noting charges to what Kiran owes: ₹40,000 + ₹500 = ₹40,500.
Meera's entry: Kiran A/c Dr. ₹40,500; to Bills Receivable A/c ₹40,000; to Bank A/c ₹500.
In Kiran's books, the bill payable is cancelled and the amount again becomes payable to Meera along with the noting charges.
Kiran's entry: Bills Payable A/c Dr. ₹40,000; Noting Charges A/c Dr. ₹500; to Meera A/c ₹40,500.
Check: Meera debits ₹40,500 and credits ₹40,500 (₹40,000 + ₹500). Kiran debits ₹40,500 (₹40,000 + ₹500) and credits ₹40,500.

Answer: Meera: Kiran Dr. ₹40,500 to Bills Receivable ₹40,000 and Bank ₹500. Kiran: Bills Payable Dr. ₹40,000 and Noting Charges Dr. ₹500 to Meera ₹40,500.

Exam tips

Write the date and a one-line narration with every entry. Subjective papers give step marks for clear presentation.
Always compute the due date including three days of grace unless the bill is stated to be payable on demand or the question says otherwise.
Read whether the bill is for an old debt or a fresh sale. The wrong choice costs the first entry.
When both books are asked, write the drawer's entries first and then the drawee's, so the two sets can be checked against each other.
Do not spend time on a ledger unless asked. If asked, balance the Bills Receivable or Payable account to nil after the final event.

Practice questions from Bills of Exchange and Promissory Notes

Accounting Treatment in Books of Drawer and Drawee: frequently asked questions

What is the difference between Bills Receivable and Bills Payable?

Bills Receivable is an asset in the drawer's books, showing money to be received. Bills Payable is a liability in the drawee's books, showing money to be paid. Both refer to the same bill.

Do I pass an entry when a bill is drawn?

No. Drawing alone creates no entry. You pass entries only after the drawee accepts the bill, because acceptance makes it a binding obligation.

What happens in the books when a bill is dishonoured?

The drawer cancels Bills Receivable and debits the drawee's account again. The drawee cancels Bills Payable and credits the drawer's account. Noting charges are added if the drawee must bear them.

Are days of grace always added?

Three days of grace are added for bills that are not payable on demand, unless the question says otherwise. Add them after counting the stated period to find the legal due date.