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CA Foundation · Accounting · Bills of Exchange and Promissory Notes

Asha Traders holds a bill of exchange for ₹80,000 accepted by Bhatia & Co. Asha Traders discounts it with its bank, which deducts ₹2,000 as discount and credits the balance to its account. What is the correct journal entry in Asha Traders' books on discounting?

On discounting, debit Bank with the net amount received (₹78,000) and debit Discount A/c with ₹2,000, and credit Bills Receivable with the full face value of ₹80,000. The discount is a financial expense borne by the holder, and the bill leaves Bills Receivable at face value.

  1. ABank A/c Dr. 78,000; Discount A/c Dr. 2,000; To Bills Receivable A/c 80,000Correct
  2. BBank A/c Dr. 80,000; To Bills Receivable A/c 78,000; To Discount A/c 2,000
  3. CBank A/c Dr. 78,000; To Bills Receivable A/c 78,000
  4. DBank A/c Dr. 82,000; To Bills Receivable A/c 80,000; To Discount A/c 2,000

Explanation

The bank pays 80,000 less 2,000 = 78,000. The bill is removed from Bills Receivable at its full face value of 80,000, and the 2,000 discount is a loss (expense) debited to Discount A/c. Option B treats discount as income and does not balance in the right way.

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