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

Which statement about an accommodation bill is correct?

An accommodation bill is drawn and accepted without any genuine trade transaction between the parties, purely to help one or both raise funds, usually by discounting it with a bank. The acceptor is still liable to a holder for value.

  1. AIt is drawn to settle a genuine sale of goods between the drawer and the acceptor
  2. BIt is drawn and accepted without consideration, to help one or both parties raise fundsCorrect
  3. CIt cannot be discounted with a bank
  4. DIt creates no liability on the acceptor towards a holder in due course

Explanation

An accommodation bill is drawn and accepted without a trade transaction, so that one or both parties can raise funds by discounting it. It can be discounted, and the acceptor is liable to a bank or holder for value. Hence only the statement about lack of consideration between the parties is correct.

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