Skip to content

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

Bose & Co. sends a bill of ₹50,000 to its bank for collection. The bank collects it on the due date and deducts ₹250 as collection charges. What is the correct entry on collection in Bose & Co.'s books?

Bose & Co. debits Bank ₹49,750 and Bank Charges ₹250 and credits Bills Receivable ₹50,000. The bill is settled in full, but the bank keeps ₹250 as collection charges, which are an expense of the business and reduce the cash received.

  1. ABank A/c Dr ₹49,750; Bank Charges A/c Dr ₹250; to Bills Receivable ₹50,000Correct
  2. BBank A/c Dr ₹50,000; to Bills Receivable ₹50,000
  3. CBank A/c Dr ₹50,250; to Bills Receivable ₹50,000; to Bank Charges ₹250
  4. DBills Receivable A/c Dr ₹50,000; to Bank ₹50,000

Explanation

The bank credits only ₹50,000 − ₹250 = ₹49,750. The ₹250 is an expense, so Bank Charges is debited. Bills Receivable is credited with the full ₹50,000 because the bill is fully settled. Option B ignores the charges.

Did you get it right without looking?

One question tells you little. A timed set on Bills of Exchange shows your real accuracy, how long you take and where you lose marks.

Practise Bills of ExchangeFree diagnostic mock

More Bills of Exchange questions