Skip to content

CA Foundation · Accounting · Bills of Exchange and Promissory Notes

Kapoor Ltd. discounted a bill of ₹40,000 with its bank at 12% per annum, 3 months before the due date. Which entry is correct in Kapoor's books?

The discount is ₹1,200 (₹40,000 × 12% × 3/12), so the bank is debited ₹38,800 and Discount A/c ₹1,200, while Bills Receivable is credited ₹40,000. Discount is a financial expense and the bill is removed at its full face value.

  1. ABank A/c Dr. 38,800 and Discount A/c Dr. 1,200 to Bills Receivable A/c 40,000Correct
  2. BBank A/c Dr. 40,000 to Bills Receivable A/c 40,000
  3. CBank A/c Dr. 38,800 to Bills Receivable A/c 38,800
  4. DBank A/c Dr. 41,200 to Bills Receivable A/c 40,000 and Discount Received 1,200

Explanation

Discount = 40,000 × 12% × 3/12 = ₹1,200, which is an expense. The bank credits ₹38,800. Bills Receivable is credited at full face value of ₹40,000. Option C credits Bills Receivable at the net amount, leaving the discount unrecorded.

Did you get it right without looking?

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

Practise Bills of Exchange and Promissory NotesFree diagnostic mock

More Bills of Exchange and Promissory Notes questions