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

Which statement correctly distinguishes a bill of exchange from a promissory note?

A bill of exchange normally has three parties, namely drawer, drawee and payee, whereas a promissory note has two, the maker and the payee. A bill carries an order and needs acceptance, while a note carries a promise to pay.

  1. AA bill has three parties normally, whereas a note has two partiesCorrect
  2. BA bill is signed by the payee, whereas a note is signed by the drawee
  3. CA bill needs no acceptance, whereas a note must be accepted
  4. DA bill contains a promise to pay, whereas a note contains an order to pay

Explanation

A bill involves drawer, drawee and payee, while a note involves maker and payee. A bill is signed by the drawer and needs acceptance by the drawee; a note is signed by the maker. A note contains a promise, a bill an order, so the last option is reversed.

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