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

Sita Enterprises accepted a bill of ₹25,000 drawn by Gupta Brothers. On the due date, Sita Enterprises pays the bill through its bank. The entry in the books of Sita Enterprises is:

Sita Enterprises debits Bills Payable and credits Bank by ₹25,000. The bill was recorded as a liability on acceptance, so payment on the due date removes that liability and reduces the bank balance.

  1. ABills Payable A/c Dr. 25,000 to Bank A/c 25,000Correct
  2. BBills Receivable A/c Dr. 25,000 to Bank A/c 25,000
  3. CGupta Brothers A/c Dr. 25,000 to Bank A/c 25,000
  4. DBank A/c Dr. 25,000 to Bills Payable A/c 25,000

Explanation

When the drawee accepted the bill, it credited Bills Payable. On payment, the liability is extinguished by debiting Bills Payable and crediting Bank. Option C would be wrong because Gupta Brothers' account was already settled at acceptance, so debiting it again double-counts.

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