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

Singh Brothers owes ₹45,000 to Verma Ltd. Singh Brothers endorses to Verma Ltd a bill of ₹30,000 received earlier from Gupta, and pays the balance by cheque. What is the entry in Singh Brothers' books?

Singh Brothers debits Verma Ltd ₹45,000 and credits Bills Receivable ₹30,000 for the endorsed bill and Bank ₹15,000 for the cheque. Endorsement transfers the receivable to the creditor, so no Bills Payable arises and the whole debt is cleared.

  1. AVerma Ltd A/c Dr ₹45,000; to Bills Receivable ₹30,000; to Bank ₹15,000Correct
  2. BBills Receivable A/c Dr ₹30,000; to Verma Ltd A/c ₹30,000
  3. CVerma Ltd A/c Dr ₹30,000; to Bills Payable ₹30,000
  4. DVerma Ltd A/c Dr ₹15,000; to Bank ₹15,000

Explanation

Endorsing the bill transfers the asset, so Bills Receivable is credited ₹30,000. The cheque credits Bank ₹15,000. Together they settle Verma Ltd's whole ₹45,000. Bills Payable is not created, since Singh Brothers is not an acceptor.

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