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CMA Intermediate · Financial Accounting · Bills of Exchange

Verma & Co. sent a Rs 20,000 bill to its bank for collection. On collection the bank deducted Rs 150 as collection charges and credited the balance. Which is the correct entry in Verma's books on receipt of the advice?

Verma debits Bank Rs 19,850 and Collection Charges Rs 150, and credits Bills Receivable Rs 20,000. The bill is fully settled, so the receivable is cleared in full, while the bank's deduction is treated as an expense.

  1. ABank A/c Dr 19,850; Collection Charges A/c Dr 150; to Bills Receivable A/c 20,000Correct
  2. BBank A/c Dr 20,000 to Bills Receivable A/c 20,000
  3. CBank A/c Dr 19,850 to Bills Receivable A/c 19,850
  4. DBank A/c Dr 20,150 to Bills Receivable A/c 20,000; to Collection Charges A/c 150

Explanation

Bills Receivable is credited with the full 20,000 as the asset is extinguished. Bank receives 19,850 and the Rs 150 is an expense, debited to Collection Charges. Option 3 leaves the receivable partly open and ignores the expense.

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