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CA Foundation · Accounting · Bills of Exchange and Promissory Notes

On receiving a duly accepted bill of exchange from a customer, Anil Traders (the drawer) in its books will:

The drawer debits Bills Receivable Account and credits the customer's personal account. The accepted bill is an asset for the drawer, so it is debited, while the customer's liability is discharged by the bill, so the customer is credited.

  1. ADebit Bills Receivable Account and credit the customer's personal accountCorrect
  2. BDebit the customer's personal account and credit Bills Receivable Account
  3. CDebit Bills Payable Account and credit the customer's personal account
  4. DDebit Cash Account and credit Bills Receivable Account

Explanation

When the bill is accepted, the drawer gains an asset, Bills Receivable, so it is debited. The customer's debt is settled by the bill, so the customer's personal account is credited. Option B reverses the entry, which is what is done when the bill is later honoured or dishonoured in a different sense.

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