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CA Foundation · Accounting · Bills of Exchange and Promissory Notes

Gupta & Co. sends a bill of ₹90,000 to its bank for collection. The bank collects it on maturity and deducts ₹300 as collection charges, crediting the net amount. What is the entry in Gupta & Co.'s books when the bank advises the collection?

Debit Bank ₹89,700 and Bank Charges ₹300, and credit Bills Receivable ₹90,000. The bank pays the face value less its collection fee, the fee is an expense of the drawer, and the bill is cleared from receivables at its full face value.

  1. ABank A/c Dr. 89,700; Bank Charges A/c Dr. 300; To Bills Receivable A/c 90,000Correct
  2. BBank A/c Dr. 90,000; To Bills Receivable A/c 90,000
  3. CBank A/c Dr. 90,300; To Bills Receivable A/c 90,000; To Bank Charges A/c 300
  4. DBills Sent for Collection A/c Dr. 90,000; To Bills Receivable A/c 90,000

Explanation

The bank credits 90,000 − 300 = ₹89,700, so Bank is debited that amount. The ₹300 collection charge is an expense, debited to Bank Charges A/c, and Bills Receivable is credited with the full ₹90,000. Option B ignores the charges.

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