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CMA Foundation · Fundamentals of Financial and Cost Accounting · Bills of Exchange

Anil Enterprises owes Rs 30,000 to Deepak & Sons. It endorses to Deepak a Rs 24,000 bill received from Karan, in part settlement of the debt. What is the correct entry in Anil's books?

Debit Deepak & Sons A/c Rs 24,000 and credit Bills Receivable A/c Rs 24,000. Endorsement hands the bill to the creditor, reducing the amount owed by the bill's face value, leaving Rs 6,000 still payable, with no cash or discount involved.

  1. ADeepak & Sons A/c Dr 24,000; To Bills Receivable A/c 24,000Correct
  2. BBank A/c Dr 24,000; To Bills Receivable A/c 24,000
  3. CDeepak & Sons A/c Dr 30,000; To Bills Receivable A/c 24,000; To Discount Received 6,000
  4. DBills Payable A/c Dr 24,000; To Bills Receivable A/c 24,000

Explanation

Endorsing a bill transfers it to the creditor, so the creditor's account is debited and Bills Receivable is credited by 24,000. Deepak is still owed the balance of Rs 6,000. Bank is not involved, and no discount arises because the bill is credited at face value.

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