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CA Foundation · Accounting · Bills of Exchange and Promissory Notes

Gupta & Sons sent a bill of ₹60,000 to its bank for collection. The bank collected it on the due date and deducted ₹400 as collection charges, crediting the balance to Gupta's account. Which entry is correct in Gupta's books on collection?

The correct entry debits Bank ₹59,600 and Collection Charges ₹400, and credits Bills Receivable ₹60,000. The bill is extinguished at face value, the bank deposits the net amount, and the deducted charge is recorded as an expense.

  1. ABank A/c Dr. ₹59,600; Collection Charges A/c Dr. ₹400; to Bills Receivable A/c ₹60,000Correct
  2. BBank A/c Dr. ₹60,000 to Bills Receivable A/c ₹60,000
  3. CBank A/c Dr. ₹59,600 to Bills Receivable A/c ₹59,600
  4. DBank A/c Dr. ₹60,400; to Bills Receivable A/c ₹60,000; to Collection Charges A/c ₹400

Explanation

Bills Receivable is credited at the full face value of ₹60,000. The bank credits only ₹59,600, so Bank is debited that amount and the ₹400 charge is an expense. The third option understates the receivable, which is wrongly reduced by the charges.

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