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CMA Foundation · Fundamentals of Financial and Cost Accounting · Bills of Exchange

Ravi Traders sells goods worth ₹40,000 on credit to Mohan & Co. and draws a bill of exchange on Mohan & Co., which Mohan accepts. In the books of Ravi Traders (the drawer), the entry on receiving the accepted bill is:

The drawer debits Bills Receivable and credits the drawee's personal account for ₹40,000. The accepted bill is an asset for the drawer, and the debtor's liability is replaced by the bill. The reverse entry or use of Bills Payable would be wrong.

  1. ABills Receivable A/c Dr. 40,000 to Mohan & Co. A/c 40,000Correct
  2. BMohan & Co. A/c Dr. 40,000 to Bills Receivable A/c 40,000
  3. CBills Payable A/c Dr. 40,000 to Ravi Traders A/c 40,000
  4. DMohan & Co. A/c Dr. 40,000 to Bills Payable A/c 40,000

Explanation

The drawer gains an asset, Bills Receivable, and the debtor's personal account is cleared. So Bills Receivable is debited and Mohan & Co. is credited. Option B reverses the entry. Options C and D use Bills Payable, which is the drawee's liability and not the drawer's.

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