Fundamentals of Financial and Cost Accounting · Bills of Exchange

Accounting Treatment of Bills in Books of Drawer and Drawee

Updated 10 October 2026 · Fact-checked

A bill of exchange is recorded differently by each party. The drawer (seller) debits Bills Receivable when the bill is accepted. The drawee (buyer) credits Bills Payable on acceptance. On maturity, the drawer debits Bank and credits Bills Receivable; the drawee debits Bills Payable and credits Bank.

Understand Accounting Treatment of Bills in Books of Drawer and Drawee

A bill of exchange is a written order by the drawer (usually the seller) to the drawee (usually the buyer) to pay a fixed sum on a fixed date. It becomes a binding promise only when the drawee signs it as acceptance. Until then, nothing is recorded for the bill itself.

The same bill is an asset for one party and a liability for the other. For the drawer, the bill is money to be received, so it goes into Bills Receivable Account. In the modern approach this is an asset account. In the traditional classification it is treated as a personal account, representing the acceptor who will pay. For the drawee, it is money to be paid, so it goes into Bills Payable Account. In the modern approach this is a liability account. In the traditional classification it is also a personal account, representing the person who will be paid.

Think of it as a swap. Before the bill, the buyer owes the seller on open credit, shown in the seller's Debtor account and the buyer's Creditor account. When the bill is accepted, the debt does not vanish. It simply changes form. The drawer moves the amount from the Debtor to Bills Receivable. The drawee moves it from the Creditor to Bills Payable.

On the due date, the bill is paid. The drawer receives cash or bank money and the Bills Receivable account closes. The drawee pays and the Bills Payable account closes. If the drawee fails to pay, the bill is dishonoured, and the drawer reverses the entry and makes the drawee a debtor again.

In exams, always ask first: whose books am I writing? Then decide whether the bill is an asset (receivable) or a liability (payable). Most mistakes come from mixing the two sides.

Key formulas to remember

Credit sale settled by bill: drawer's books: Bills Receivable A/c Dr. ; To Drawee's (Debtor's) A/c; Passed on receiving the accepted bill. Debit Bills Receivable for the bill amount.
Credit purchase settled by bill: drawee's books: Drawer's (Creditor's) A/c Dr. ; To Bills Payable A/c; Passed on accepting the bill. Credit Bills Payable.
Honour on maturity: drawer: Bank A/c Dr. ; To Bills Receivable A/c; Passed on the due date when payment is received.
Honour on maturity: drawee: Bills Payable A/c Dr. ; To Bank A/c; Passed on the due date when payment is made.
Dishonour: drawer's entry: Drawee's A/c Dr. ; To Bills Receivable A/c; Revives the debt. Add noting charges to the drawee's account if the drawer pays them.
Dishonour: drawee's entry: Bills Payable A/c Dr. ; To Drawer's A/c; The liability goes back to the creditor.
Bills Receivable in ledger: Debit side: bills received; Credit side: bills honoured, dishonoured, endorsed, discounted; A normal asset account. A balance shows bills still in hand.

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

Use this method for any bill question on journal entries or ledger accounts.

1Identify whose books are asked: drawer or drawee. Write this at the top.
2Decide the nature of the bill for that party: Bills Receivable for the drawer, Bills Payable for the drawee.
3Pass the entry on acceptance or receipt: debit Bills Receivable or debit the creditor; credit the debtor or credit Bills Payable.
4Find the due date from the date of the bill and the term. Add 3 days of grace as per the Negotiable Instruments Act, but only for bills payable after a fixed period or after date or sight. Grace days do not apply to bills payable on demand, or when the question says that no grace is allowed.
5Pass the maturity entry: honour (bank entry) or dishonour (reverse entry with any charges).
6If the ledger is asked, post each entry on the correct side with the date and the name of the other account.
7Balance the account. The closing balance should equal bills still held and unmatured at the balancing date.

Quickest way: Receivable-Payable mirror check

When to use it: Use this for MCQs asking which account is debited or credited in a given party's books.

Ask: am I receiving or paying on this bill? Receiving means Bills Receivable. Paying means Bills Payable.
On acceptance, Bills Receivable is always debited and Bills Payable is always credited.
On honour, the same account is reversed: Bills Receivable credited, Bills Payable debited.
Bank is debited for the drawer and credited for the drawee at maturity.
Eliminate options that debit Bills Payable on acceptance or credit Bills Receivable on receipt.

Common mistakes in Accounting Treatment of Bills in Books of Drawer and Drawee

Debiting Bills Payable in the drawer's books.
Students forget that the drawer is the one who will receive money.
Fix: Remember that for a bill the drawer has drawn on a debtor, the drawer records Bills Receivable, not Bills Payable.
Passing an entry at the time of drawing, before acceptance.
The word drawing sounds like a transaction.
Fix: Record the bill only after the drawee accepts it. A bill not yet accepted is just an order.
Mixing up the debit and credit sides in the Bills Receivable ledger.
The account is linked to a named person, so some students treat it as an ordinary personal account and get the sides confused.
Fix: Treat it as an asset in the modern approach: debit to increase, credit to decrease. Bills Payable is the opposite: credit to increase, debit to decrease.
Forgetting to credit the debtor when the bill is received.
Students focus on the new account and ignore the old one.
Fix: Always settle the old personal account: the debtor is credited and the creditor is debited.
Ignoring noting charges on dishonour.
The charges are given as a side note in the question.
Fix: If the drawer pays noting charges, add them to the amount debited to the drawee on dishonour.

Worked examples

Example 1

Ravi Traders sold goods worth ₹50,000 on credit to Mehta & Co. on 1 January. Ravi drew a 3-month bill on Mehta, who accepted it. On maturity the bill was paid in full into Ravi's bank. Pass journal entries in the books of both parties.

Show the solution

Books of Ravi (drawer): on acceptance, Bills Receivable A/c Dr. ₹50,000; To Mehta & Co. ₹50,000.
Books of Ravi: on maturity, Bank A/c Dr. ₹50,000; To Bills Receivable A/c ₹50,000.
Books of Mehta (drawee): on acceptance, Ravi Traders A/c Dr. ₹50,000; To Bills Payable A/c ₹50,000.
Books of Mehta: on maturity, Bills Payable A/c Dr. ₹50,000; To Bank A/c ₹50,000.

Answer: Ravi: Dr. Bills Receivable ₹50,000 then Dr. Bank ₹50,000. Mehta: Cr. Bills Payable ₹50,000 then Cr. Bank ₹50,000.

Example 2

Anil accepted a bill of ₹20,000 drawn by Sunil. On the due date Anil could not pay and the bill was dishonoured. Sunil paid noting charges of ₹200. Pass entries in the books of Sunil for receiving the bill and for dishonour. Also state the amount Sunil's Anil account will show as due.

Show the solution

On receipt of the accepted bill: Bills Receivable A/c Dr. ₹20,000; To Anil ₹20,000.
On dishonour, with noting charges paid by Sunil, pass one combined entry: Anil A/c Dr. ₹20,200; To Bills Receivable A/c ₹20,000; To Bank A/c ₹200.
The debit to Anil is the bill amount ₹20,000 plus noting charges ₹200, which Sunil can recover from Anil.
Total due from Anil = ₹20,000 + ₹200 = ₹20,200.

Answer: Anil owes Sunil ₹20,200 after dishonour (bill ₹20,000 plus noting charges ₹200).

Exam tips

Read the first line to see whose books are required before touching any option.
In MCQs, the debit or credit of Bills Receivable is the quickest way to eliminate wrong options.
Bills Receivable and Bills Payable closing balances in a trial balance appear on opposite sides: receivable as debit, payable as credit.
Check for noting charges and any term such as days of grace before computing the final amount.

Practice questions from Bills of Exchange

Accounting Treatment of Bills in Books of Drawer and Drawee in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

CMA IntermediateAccounting Treatment of Bills: Drawer and Drawee Entries

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

Is Bills Receivable a personal, real or nominal account?

In the traditional classification, Bills Receivable is treated as a personal account, because it represents the acceptor who will pay. Bills Payable is also personal, representing the person to be paid. In the modern approach, Bills Receivable is an asset, debited on increase and credited on decrease. Bills Payable is a liability, credited on increase and debited on decrease.

Who passes the entry when a bill is drawn but not yet accepted?

Nobody. The bill has no accounting effect until the drawee accepts it. Only after acceptance do the drawer and drawee record it.

What is the difference between a bill and a promissory note in accounting?

A promissory note is made by the debtor and given to the creditor. The entries for the payee are similar to those for a bill receivable, and for the maker to those for a bill payable. Always match each party to the receiving or paying side.

What happens to the Bills Payable account when the bill is dishonoured?

The drawee debits Bills Payable to remove the liability and credits the drawer's account. The liability is now an ordinary debt to the drawer again, with any noting charges added if applicable.