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CA Foundation · Accounting · Bills of Exchange and Promissory Notes

Kiran & Co. endorsed to Lalit Ltd., in full settlement of its account, a bill for ₹25,000 that it had earlier received from Mehta Bros. What journal entry does Kiran & Co. pass on endorsement?

Kiran & Co. debits Lalit Ltd.'s account and credits Bills Receivable by ₹25,000. Endorsement transfers the bill to the creditor, reducing the amount payable to him and removing the bill from the receivable assets of the endorser.

  1. ALalit Ltd. A/c Dr. ₹25,000 to Bills Receivable A/c ₹25,000Correct
  2. BBills Receivable A/c Dr. ₹25,000 to Lalit Ltd. A/c ₹25,000
  3. CLalit Ltd. A/c Dr. ₹25,000 to Mehta Bros. A/c ₹25,000
  4. DBank A/c Dr. ₹25,000 to Bills Receivable A/c ₹25,000

Explanation

Endorsing a bill to a creditor discharges the liability to that creditor, so the creditor's account is debited. The asset Bills Receivable leaves the books, so it is credited. The reverse entry in the second option would record receipt of a bill, not its endorsement.

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