Accounting · Bills of Exchange and Promissory Notes

Meaning and Features of Bills of Exchange for CA Foundation

Updated 1 October 2026

A bill of exchange is a written, signed, unconditional order by the drawer directing a certain drawee to pay a fixed sum to a certain person or his order (or the bearer, if payable after a fixed time). The drawee becomes liable as acceptor on signing acceptance. Solve questions by identifying the parties, the dates and the due date.

Understand Meaning and Features of Bills of Exchange

A bill of exchange solves a common trade problem. A seller supplies goods on credit. The buyer owes money, but the seller wants a legal, written proof of the debt that can be enforced and, if needed, transferred to someone else.

The seller writes an order asking the buyer to pay a fixed sum on a fixed date. This written order is the bill. The seller is the drawer. The buyer, who is asked to pay, is the drawee. The drawee must be a certain, named person. The person who receives the money is the payee. The order is to pay a certain person or his order. A bill payable after a fixed time may also be made payable to the bearer, but a bill payable on demand cannot be payable to bearer. The drawer and payee can be the same person. When the drawee signs the bill to show agreement, this is acceptance, and the drawee is then called the acceptor.

A promissory note is different. It is a written, signed, unconditional promise by the maker to pay a fixed sum to a certain person or to his order. It has only two parties: the maker (debtor) and the payee (creditor). Here the debtor writes and signs the document. In a bill, the creditor writes it and the debtor accepts it.

Every bill has a term (the period for which it is drawn) and a due date. The date of maturity is the day the bill actually falls due for payment. Three extra days, called days of grace, are added to the due date of a bill payable after a period. So the maturity date is the due date plus 3 days. Bills payable on demand get no days of grace.

Both instruments are negotiable. Ownership can pass by delivery or by endorsement. This is why a holder can discount a bill with a bank, endorse it to a creditor, or hold it till maturity.

Key rules to remember

Date of maturity: Date of maturity = Date of bill (or date of sight/acceptance) + Term of bill + 3 days of grace; Days of grace apply to bills payable after a period. They do not apply to bills payable on demand or at sight. For a bill payable after sight, count from the date of acceptance or sight, not the bill date. If the maturity date is a public holiday, it shifts (see the holiday rule in the steps).
Essentials of a bill of exchange: Written + Signed by drawer + Unconditional order + Fixed sum + Certain parties (drawer, drawee and payee) + Order to pay a certain person or his order (or the bearer, if payable after a fixed time) + Payable on demand or at a fixed time; Missing any one of these means the instrument is not a valid bill. The drawee must be a certain person. A bill payable on demand cannot be payable to bearer.
Essentials of a promissory note: Written + Signed by maker + Unconditional promise + Fixed sum + Certain payee + Payable on demand or at a fixed time; It must contain a definite promise to pay, not just an acknowledgement of a debt. The maker cannot be the payee. A note must be payable to a certain person or his order, so it cannot be made payable to bearer on demand.
Parties: Bill: Drawer, Drawee (Acceptor), Payee | Note: Maker, Payee; In a bill, drawer and payee may be the same person. In a note, there are only two parties.

How to solve Meaning and Features of Bills of Exchange questions

Use this method for any theory or short-answer question on meaning, features, parties and dates.

1Read the question and decide whether it asks about a bill, a promissory note, or a comparison.
2Write a one-line definition: written, signed, unconditional order, fixed sum, certain drawee, payable to a certain person or his order, on demand or at a fixed time.
3Identify each party from the facts. The seller who writes the order is the drawer. The buyer who accepts is the drawee.
4Name the payee. If the drawer keeps the bill and collects the money, the drawer is also the payee.
5Note the date of the bill and its term (days or months). Check whether it is payable on demand.
6Choose the starting date. For a bill payable after a fixed period, use the date of the bill. For a bill payable after sight, use the date of acceptance or sight. Add the term to that date, then add 3 days of grace to get the date of maturity.
7Check the maturity date against holidays. If it is a public holiday, the bill falls due on the preceding business day. If it is an emergency holiday, the bill falls due on the next working day.
8Write the conclusion clearly, naming the due date and the parties.
9If the question is a comparison, use two columns of points: who writes it, parties, acceptance, and who is primarily liable.

Quickest way: Party-and-date check in 30 seconds

When to use it: Use this for short questions that ask you to name parties, state features or find the date of maturity.

Ask: who wrote it? If the creditor wrote it, it is a bill. If the debtor wrote it, it is a note.
Label the three bill roles: orders (drawer), pays (drawee), receives (payee).
Circle the start date and term. Start from the bill date, or from the date of acceptance if the bill is payable after sight. Count months by calendar, not by 30 days.
Add 3 days of grace. Skip this only if the bill is on demand. Then check for a holiday: a public holiday moves the due date to the preceding business day, and an emergency holiday moves it to the next working day.
Write the answer in one line, such as 'Date of maturity: 4 April'.

Common mistakes in Meaning and Features of Bills of Exchange

Calling the debtor the drawer.
Students think the one who owes money is the one who draws the bill.
Fix: Remember that the creditor draws the bill. The debtor accepts it and becomes the drawee, then the acceptor.
Treating a promissory note as having three parties.
Students mix it up with the bill of exchange.
Fix: A note has only two parties: maker and payee. The maker is the debtor.
Forgetting the 3 days of grace.
The date is calculated as bill date plus term, and the last step is skipped.
Fix: Add 3 days after the term for every bill payable after a period. Make it a fixed final step.
Adding days of grace to a bill payable on demand.
Students apply the rule to every bill.
Fix: A bill payable on demand or at sight is due when presented, so days of grace do not apply.
Counting months as 30 days.
Students convert months to days to save effort.
Fix: A term in months ends on the same date of the later month. Count in days only when the term is given in days.
Writing that a bill needs no signature or can carry a condition.
The definition is memorised loosely.
Fix: A bill must be signed by the drawer and must contain an unconditional order. A conditional order makes it invalid.
Counting an after-sight bill from the bill date, or ignoring a holiday on the maturity date.
Students use one starting date for every bill and stop once they add the 3 days.
Fix: Count a bill payable after sight from the date of acceptance or sight. After adding grace, check the date. A public holiday moves the due date to the preceding business day, and an emergency holiday moves it to the next working day.

Worked examples

Example 1

Ravi sold goods worth ₹50,000 to Sunil on credit and drew a bill on him for 3 months dated 1 January. Sunil accepted it. Identify the drawer, drawee and payee, and find the date of maturity. Assume 4 April is not a holiday.

Show the solution

Ravi is the creditor who drew the bill, so Ravi is the drawer.
Sunil is the debtor who accepted it, so Sunil is the drawee and the acceptor.
No other person is named, so Ravi is also the payee.
The term of 3 months from 1 January ends on 1 April.
Add 3 days of grace: 1 April + 3 days = 4 April.

Answer: Drawer and payee: Ravi. Drawee and acceptor: Sunil. Date of maturity: 4 April.

Example 2

State any four differences between a bill of exchange and a promissory note.

Show the solution

Parties: a bill has three parties (drawer, drawee, payee), though two roles may be held by one person. A note has two parties (maker and payee).
Nature: a bill contains an unconditional order to pay. A note contains an unconditional promise to pay.
Who creates it: the creditor (drawer) writes a bill. The debtor (maker) writes a note.
Acceptance: a bill payable after a period must be accepted by the drawee. A note needs no acceptance, since the maker signs it himself.
Liability: in a bill, the drawee becomes primarily liable after accepting. In a note, the maker is primarily liable from the beginning.

Answer: A bill is an order by the creditor with three parties and needs acceptance. A note is a promise by the debtor with two parties and needs no acceptance.

Exam tips

Learn the definitions word by word: written, signed, unconditional, fixed sum, certain parties. Examiners award marks for each essential you name.
In date questions, show the working line by line: start date, plus term, plus 3 days of grace. This earns step marks even if the final date is off.
In date questions, check two things before you start: whether the bill is payable after sight (count from acceptance) and whether the question mentions a holiday on the maturity date.
In comparison answers, give points in pairs and use at least four. Do not write a long paragraph.
Always label the parties in the answer when the problem gives names. Do this before any journal entry in later questions.

Practice questions from Bills of Exchange and Promissory Notes

Meaning and Features of Bills of Exchange: frequently asked questions

What are the parties to a bill of exchange?

There are three: the drawer who writes the bill, the drawee who is ordered to pay and who accepts it, and the payee who receives the money. The drawer and the payee can be the same person.

What is days of grace in a bill of exchange?

Days of grace are 3 extra days added to the due date of a bill payable after a period. The bill matures on the third day after the due date. They are not allowed on bills payable on demand.

What is the difference between a bill of exchange and a promissory note?

A bill is an order written by the creditor and accepted by the debtor. A promissory note is a promise written by the debtor. A bill has three parties, and a note has two.

Can the drawer and the payee be the same person?

Yes. If the drawer draws the bill in his own favour, he is both drawer and payee. This is common when a seller keeps the bill until maturity.

What if the date of maturity falls on a holiday?

If the maturity date is a public holiday, the bill falls due on the preceding business day. If it is an emergency holiday, the bill falls due on the next working day. Check the date after you add the 3 days of grace.