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CA Intermediate · Financial Management and Strategic Management · Management of Payables (Creditors)

Which of the following is a correct statement about a bill of exchange as an instrument used in managing payables?

The correct statement is that once the drawee accepts a bill of exchange, they are legally bound to pay on the due date, and the drawer can discount the bill with a bank to obtain funds early. A promise by the maker is a promissory note, not a bill.

  1. AAcceptance by the drawee creates a legal obligation to pay on the due date, and the drawer can discount it with a bankCorrect
  2. BThe drawee pays the amount to the bank immediately and the bill needs no acceptance
  3. CA bill of exchange is an unconditional promise by the maker to pay the payee
  4. DA bill of exchange can be drawn only on a bank and not on a buyer

Explanation

A bill is drawn by the seller on the buyer, who accepts it, making payment due on maturity; the seller may discount it with a bank for early cash. Option C describes a promissory note. Option B and D misstate acceptance and the drawee.

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