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CA Foundation · Accounting · Bills of Exchange and Promissory Notes

Kiran & Co. endorsed to its supplier Lalit Bros. a bill for ₹36,000 that it had received from Mehta Ltd. in full settlement of the ₹36,000 it owed Lalit Bros. What is the entry in Kiran & Co.'s books on endorsement?

Debit Lalit Bros. A/c ₹36,000 and credit Bills Receivable A/c ₹36,000. Endorsing a received bill to a creditor settles the amount owed to him and removes the bill from the endorser's receivables. No Bills Payable arises because the endorser did not accept any new bill.

  1. ALalit Bros. A/c Dr. 36,000; To Bills Receivable A/c 36,000Correct
  2. BBills Payable A/c Dr. 36,000; To Bills Receivable A/c 36,000
  3. CBills Receivable A/c Dr. 36,000; To Lalit Bros. A/c 36,000
  4. DMehta Ltd. A/c Dr. 36,000; To Lalit Bros. A/c 36,000

Explanation

Endorsing the bill discharges Kiran & Co.'s liability to Lalit Bros., so Lalit Bros. (a creditor) is debited. The asset Bills Receivable is reduced by crediting it. Bills Payable is wrong because Kiran & Co. has not accepted any new bill; it has only transferred an existing one.

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