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CMA Intermediate · Financial Accounting · Bills of Exchange

Rao & Sons accepted a bill of Rs 30,000 drawn by Iyer Ltd. On the due date, Rao & Sons pays Rs 30,000 by cheque. What is the correct entry in the books of Rao & Sons?

Debit Bills Payable Rs 30,000 and credit Bank Rs 30,000. The acceptor created a liability under Bills Payable when it accepted the bill, and paying it on the due date discharges that liability while reducing the bank balance. The drawer's personal account was already cleared on acceptance.

  1. ADebit Iyer Ltd Rs 30,000; credit Bank Rs 30,000
  2. BDebit Bills Payable Rs 30,000; credit Bank Rs 30,000Correct
  3. CDebit Bank Rs 30,000; credit Bills Payable Rs 30,000
  4. DDebit Bills Receivable Rs 30,000; credit Bank Rs 30,000

Explanation

Rao & Sons is the acceptor, so the bill was credited to Bills Payable on acceptance. Payment on maturity discharges that liability, so Bills Payable is debited and Bank is credited. Debiting Iyer Ltd would be wrong because that account was already cleared on acceptance.

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