Accounting · Bills of Exchange and Promissory Notes

Promissory Note vs Bill of Exchange: CA Foundation Accounting

Updated 1 October 2026

A promissory note is a written, unconditional promise by the maker to pay a fixed sum to the payee. A bill of exchange is a written, unconditional order by the drawer to the drawee to pay a fixed sum. A note has two parties and no acceptance. A bill has three parties and needs acceptance.

Understand Promissory Note vs Bill of Exchange

Both instruments are negotiable instruments under the Negotiable Instruments Act, 1881. Each is a written document that creates a debt. Each can be transferred from one person to another, and each is payable on demand or after a fixed period.

A promissory note is a promise. The person who owes the money writes it. He is the maker. He promises to pay a certain sum to the payee. So there are only two parties. The maker is the debtor and the payee is the creditor.

A bill of exchange is an order. The creditor usually writes it. He is the drawer. He orders the debtor, the drawee, to pay a certain sum to a named person, the payee. The drawer and the payee can be the same person, which is the usual case in a trade bill. Once the drawee signs his acceptance, he becomes the acceptor and is bound to pay.

The key idea is who starts the instrument. In a note, the debtor starts it by promising. In a bill, the creditor starts it by ordering, and the debtor must accept before he is liable. That one idea explains most of the differences in the table you will be asked to write.

Both must be in writing, signed, and carry an unconditional promise or order for a certain sum of money. A promissory note cannot be made payable to bearer, whether it is payable on demand or not. A bill can be payable to bearer only if it is not payable on demand.

Key rules to remember

Promissory note: definition: Written + signed by maker + unconditional promise + certain sum of money + payable to a certain person or to his order; Missing any one element makes it an invalid note. A promissory note cannot be made payable to bearer.
Bill of exchange: definition: Written + signed by drawer + unconditional order + certain sum of money + payable to a certain person, or to his order, or to the bearer of the instrument; The order is addressed to the drawee. The drawee is not liable until he accepts.
Parties in a promissory note: Maker (debtor) and Payee (creditor); Two parties. The maker is primarily liable from the start.
Parties in a bill of exchange: Drawer (creditor), Drawee (debtor) and Payee; Three parties. Drawer and payee can be one person. After acceptance the drawee is called the acceptor.
Liability rule: Note: maker is primarily liable. Bill: acceptor is primarily liable, drawer is secondarily liable.; The drawer of a bill must pay only if the acceptor dishonours it.
Acceptance rule: Note: no acceptance. Bill payable after sight: must be presented for acceptance. Bill payable on demand: presented only for payment. Bill payable on a fixed date: may be presented for acceptance, but this is not compulsory.; A bill payable after sight must be presented for acceptance to fix its due date. A bill payable on demand is payable on presentment, so it is presented only for payment. A bill payable on a fixed date may be presented for acceptance to bind the drawee, but presentment is not compulsory. A note is presented only for payment.

How to solve Promissory Note vs Bill of Exchange questions

Use this method for any question that asks you to distinguish, define or identify the instruments.

1Read the question and find whether it asks for a definition, a comparison or an identification of parties.
2Check the document: is it a promise (I promise to pay) or an order (pay to)? This decides note or bill.
3Name the parties with the right labels: maker and payee for a note; drawer, drawee and payee for a bill.
4Check the validity points: writing, signature, unconditional, certain sum, certain payee.
5State who is primarily liable and who is secondarily liable.
6For a comparison, write the points in two columns: parties, nature, acceptance, liability, number of copies and payable to bearer.
7End with a one-line conclusion, such as what the instrument is and who must pay.

Quickest way: Promise or order test

When to use it: Use it when a question gives a document or a short case and asks you to identify the instrument and its parties in a few lines.

Look for the words. 'I promise to pay' means promissory note. 'Pay to' or 'I order you to pay' means bill of exchange.
Count the parties. Two means a note. Three means a bill.
Write the party labels at once: maker, payee, or drawer, drawee, payee.
For a comparison answer, use the fixed order: definition, parties, acceptance, liability, bearer. Write one line per point.
Add the primary liability line at the end to earn the last mark.

Common mistakes in Promissory Note vs Bill of Exchange

Calling the debtor the drawer in a promissory note.
Students mix the party names of the two instruments.
Fix: Use maker and payee for notes only. Use drawer, drawee and payee for bills only.
Saying a promissory note needs acceptance.
Students assume every instrument is accepted before it binds.
Fix: A note is the debtor's own promise, so it needs no acceptance. Only a bill needs the drawee's acceptance.
Writing that the drawer of an accepted bill is primarily liable.
The drawer creates the bill, so students think he owes the money.
Fix: After acceptance the acceptor is primarily liable. The drawer is liable only if the acceptor fails to pay.
Treating a conditional promise as a valid note or bill.
Students forget that unconditional is a legal requirement.
Fix: Check for words like 'if' or 'provided that'. A promise or order that depends on an uncertain event is not valid.
Saying a promissory note can be payable to bearer, or that a bill can be payable to bearer on demand.
Students remember bearer instruments in general but not the exceptions.
Fix: A promissory note cannot be payable to bearer, whether on demand or not. A bill can be payable to bearer only if it is not payable on demand.
Thinking the payee is a separate person in every bill.
The textbook shows three parties and students assume three different persons.
Fix: Say that the drawer and the payee can be the same person. A bill still has three roles.

Worked examples

Example 1

On 1 April, Ravi signs a document: 'I promise to pay Sunil or order ₹50,000 three months after date.' Identify the instrument and name the parties. Who is primarily liable?

Show the solution

The document says 'I promise to pay', so it is a promise, not an order.
It is in writing, signed by Ravi, unconditional, for a certain sum of ₹50,000, and payable to a certain person, Sunil.
So it is a valid promissory note.
Ravi is the maker, because he makes the promise. Sunil is the payee, because he receives the money.
There are only two parties and no acceptance is needed.
The maker is primarily liable from the time he signs.

Answer: It is a promissory note. Ravi is the maker and Sunil is the payee. Ravi is primarily liable.

Example 2

Distinguish between a promissory note and a bill of exchange on four points.

Show the solution

Choose four clear points: nature, parties, acceptance and liability.
Nature: a promissory note contains an unconditional promise to pay. A bill contains an unconditional order to pay.
Parties: a note has two parties, the maker and the payee. A bill has three, the drawer, the drawee and the payee. The drawer and payee may be the same person.
Acceptance: a note needs no acceptance. A bill needs the drawee's acceptance, which makes him the acceptor.
Liability: the maker of a note is primarily liable. In a bill the acceptor is primarily liable and the drawer is secondarily liable.

Answer: Note: a promise, two parties, no acceptance, maker primarily liable. Bill: an order, three parties, acceptance needed, acceptor primarily liable and drawer secondarily liable.

Exam tips

Write a comparison as two columns or as paired lines, one point at a time. Four to six points are enough for most questions.
Always use the correct party labels. Wrong labels lose marks even when the rest is right.
If a question gives a document, quote the key words from it, such as 'I promise to pay', to justify your answer.
Add the primary and secondary liability line. It is a point many students skip.
Practise this topic with the date and accounting entries chapters, because the theory points help you in entry questions.

Practice questions from Bills of Exchange and Promissory Notes

Promissory Note vs Bill of Exchange: frequently asked questions

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

A promissory note is a promise by the debtor to pay. A bill of exchange is an order by the creditor to the debtor to pay. A note has two parties and a bill has three.

Who are the parties to a promissory note?

The maker and the payee. The maker is the person who promises to pay and the payee is the person who receives the money.

Does a promissory note need acceptance?

No. The maker signs the note himself, so he is already bound. Only a bill of exchange needs acceptance by the drawee.

Can the drawer and payee of a bill be the same person?

Yes. In most trade bills, the seller draws the bill on the buyer and keeps himself as the payee. The bill still has three roles.