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CA Foundation · Accounting · Bills of Exchange and Promissory Notes

Which one of the following statements correctly distinguishes a promissory note from a bill of exchange?

A promissory note holds an unconditional promise by the maker to pay, while a bill of exchange holds an unconditional order by the drawer directing the drawee to pay. This difference between promise and order is the basic distinction; the note has two parties and no acceptance, the bill has three.

  1. AA promissory note contains an unconditional promise by the maker to pay, whereas a bill contains an unconditional order by the drawer to the drawee to payCorrect
  2. BA promissory note requires acceptance by the payee, whereas a bill does not require any acceptance
  3. CA promissory note has three parties at the time of making, whereas a bill has only two
  4. DA promissory note can be made payable to the maker himself, whereas a bill cannot be made payable to the drawer

Explanation

A promissory note is a promise to pay made by the maker, while a bill is an order to pay given by the drawer to the drawee. A promissory note has two parties (maker and payee) and needs no acceptance. A bill has three parties (drawer, drawee, payee), though one person may fill two roles, and the drawee must accept it. Hence options 1, 2 and 3 reverse these features and are wrong.

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