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

Gupta & Co. sends a Rs 18,000 bill to its bank for collection. The bank collects it on the due date and charges Rs 150 as collection charges. What is the entry on receiving the bank's advice?

Debit Bank A/c Rs 17,850 and Bank Charges A/c Rs 150, and credit Bills Receivable A/c Rs 18,000. The bank passes on the collected amount net of its charges, the charges are an expense, and the bill is cleared at full face value.

  1. ABank A/c Dr 17,850; Bank Charges A/c Dr 150; To Bills Receivable A/c 18,000Correct
  2. BBank A/c Dr 18,000; To Bills Receivable A/c 18,000
  3. CBank A/c Dr 17,850; To Bills Receivable A/c 17,850
  4. DBank A/c Dr 18,150; To Bills Receivable A/c 18,000; To Bank Charges A/c 150

Explanation

The bank credits Gupta with 18,000 - 150 = 17,850. The Rs 150 is an expense, debited to Bank Charges. Bills Receivable is credited at its full value of 18,000. Debits 17,850 + 150 equal credit 18,000.

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