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CMA Intermediate · Financial Accounting · Bills of Exchange

Arora & Sons endorsed to its supplier Bhatia Ltd a Rs 30,000 bill received earlier from Chopra Stores, in full settlement of a Rs 30,000 debt. Which entry in Arora's books is correct on endorsement?

On endorsement the bill is handed to the creditor in settlement of the debt, so Arora debits the creditor, Bhatia Ltd, and credits Bills Receivable by Rs 30,000. No cash or bank is involved, and the payable is cleared.

  1. ABhatia Ltd A/c Dr 30,000 to Bills Receivable A/c 30,000Correct
  2. BBills Receivable A/c Dr 30,000 to Bhatia Ltd A/c 30,000
  3. CBank A/c Dr 30,000 to Bills Receivable A/c 30,000
  4. DChopra Stores A/c Dr 30,000 to Bhatia Ltd A/c 30,000

Explanation

Endorsing the bill transfers the asset to the creditor, so Bills Receivable is credited and the creditor's account is debited, extinguishing the payable. No bank is involved. Reversing the entry (option 2) would record a new receivable.

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