CMA Intermediate · Financial Accounting · Bills of Exchange
Mehta Traders (drawer) draws a bill of Rs 30,000 on Shah & Co. for goods sold, and Shah & Co. accepts it. In the books of Shah & Co., which entry records the acceptance?
The drawee debits the drawer's personal account and credits Bills Payable on acceptance, because the open account liability to the drawer is converted into a bill liability. Bills Receivable appears only in the drawer's books.
- ADebit Mehta Traders, credit Bills PayableCorrect
- BDebit Bills Payable, credit Mehta Traders
- CDebit Bills Receivable, credit Mehta Traders
- DDebit Purchases, credit Bills Receivable
Explanation
On acceptance the drawee's personal account liability to the drawer is replaced by a bill liability. Shah & Co. debits Mehta Traders (the creditor) and credits Bills Payable. The reverse entry would be passed only when the bill is paid or cancelled. Bills Receivable belongs to the drawer's books, not the drawee's.
Did you get it right without looking?
One question tells you little. A timed set on Bills of Exchange shows your real accuracy, how long you take and where you lose marks.
More Bills of Exchange questions
- Das & Co. accepted a Rs 40,000 bill drawn by Roy Ltd. Before maturity Das & Co. requested renewal; Roy Ltd. agreed to cancel the old bill an…
- A bill of exchange for Rs 30,000 accepted by Mehta Traders is dishonoured on the due date, and the holder, Rao & Sons, pays Rs 200 as noting…
- Anand Traders holds a Rs 24,000 bill accepted by Bose & Co. The bill is dishonoured on the due date. Which is the correct journal entry in A…
- Which one of the following is an essential feature of a bill of exchange under the Negotiable Instruments Act, 1881?
- Which of the following is the drawee's liability on a bill of exchange once the drawee has accepted it?
- In the books of a drawer, which book is used to record the particulars of all bills of exchange accepted by customers and received by the dr…