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

Kapoor & Sons holds a bill receivable of ₹80,000 and discounts it with its bank at 12% per annum, with 3 months to run before maturity. What entry is passed by Kapoor & Sons on discounting?

Discount is 80,000 × 12% × 3/12 = ₹2,400, so the bank credits ₹77,600. The entry debits Bank ₹77,600 and Discount ₹2,400 and credits Bills Receivable ₹80,000. The discount is a financial expense borne by the holder.

  1. ABank A/c Dr ₹77,600; Discount A/c Dr ₹2,400; to Bills Receivable ₹80,000Correct
  2. BBank A/c Dr ₹80,000; to Bills Receivable ₹80,000
  3. CBank A/c Dr ₹82,400; to Bills Receivable ₹80,000; to Interest ₹2,400
  4. DBank A/c Dr ₹78,400; Discount A/c Dr ₹1,600; to Bills Receivable ₹80,000

Explanation

Discount = 80,000 × 12% × 3/12 = ₹2,400. Net proceeds = 80,000 − 2,400 = ₹77,600. The discount is a loss, debited to Discount A/c. Option D uses 2 months instead of 3 months, so the discount is wrong.

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