CA Foundation · Accounting · Bills of Exchange and Promissory Notes
Mohan sold goods to Kishan on credit and drew a bill for ₹50,000. Kishan accepted it and returned it to Mohan. Mohan immediately discounted the bill with his bank at a discount of ₹1,000. What is the journal entry in Mohan's books on discounting?
Mohan debits Bank ₹49,000 and Discount ₹1,000 and credits Bills Receivable ₹50,000. The bank pays the face value less discount, the discount is an expense, and the bill is removed from receivables at its full face value.
- ABank A/c Dr. ₹49,000, Discount A/c Dr. ₹1,000 to Bills Receivable A/c ₹50,000Correct
- BBank A/c Dr. ₹50,000 to Bills Receivable A/c ₹50,000
- CBank A/c Dr. ₹49,000 to Bills Receivable A/c ₹49,000
- DBills Receivable A/c Dr. ₹50,000 to Bank A/c ₹49,000 and Discount A/c ₹1,000
Explanation
On discounting, the bank pays ₹50,000 less ₹1,000 discount, so Bank is debited ₹49,000. The ₹1,000 discount is a financial expense and is debited to Discount A/c. Bills Receivable is credited with the full ₹50,000 as the asset is removed. Option C leaves the books unbalanced in value terms and ignores the expense.
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