A bill of exchange is a financial instrument that is used for making payments between individuals or businesses. It is a written document that contains an order from one party, known as the drawer, to another party, known as the drawee, to pay a specified sum of money to a third party, known as the payee, at a later date.
Bills of exchange are often used in international trade as a means of payment, as they provide a way for one party to make a payment to another party in a foreign currency. They are also commonly used in domestic trade, as they provide a convenient way for businesses to make payments to their suppliers or to other businesses that they owe money to.
Bills of exchange have several characteristics that make them useful as a means of payment. First, they are negotiable instruments, which means that they can be transferred from one party to another. This allows them to be used as a form of payment that can be easily transferred between parties without the need for physical cash.
Second, bills of exchange are subject to certain legal rules and regulations that provide protection for both the drawer and the payee. These rules help to ensure that the bill is properly fulfilled and that the payee receives the payment that is due to them.
Finally, bills of exchange can be used as a form of collateral for loans or other financial transactions. This can be particularly useful for businesses that need to borrow money but do not have sufficient collateral to secure a loan.
In conclusion, bills of exchange are a useful financial instrument that are widely used for making payments between individuals and businesses. They are negotiable, subject to legal rules and regulations, and can be used as collateral for loans.
BILLS OF EXCHANGE ACT
However, their accounting records are affected if the drawee dishonors the bill on the due date. On the due date, if the bill is paid by the drawee, the bill is said to be honored. However, if the funds are to be paid at a set date in the future, it is known as a time draft which gives the importer a short amount of time to pay the exporter for the goods after receiving them. What is meant by the acceptance of a bill 3. A bill of exchange authorises one individual or business to ask the recipients on the other side to fulfil the sum of payment demanded in the bill. Accommodation Bill Sometimes, to oblige a friend, a bill may be accepted without consideration.
Negotiable Instruments: Bill of Exchange, Dishonoured Bills, Promissory Notes Exam Lessons
Tine of Payment Usually in the Future Payable on demand 5. Required: Pass journal entries in the books of A, B, C, D, and the bank. Consideration These bills are drawn against proper consideration. Ravinder drew upon Narayan a bill of exchange for the same amount payable after 30 days. Y, who returned the bill dishonored.
Bill of Exchange
If the bill sent for collection is dishonored Sometimes, the drawee pays the bill before the due date and receives a rebate. Payee The drawer The Creditor 4. Written by Updated on September 17, 2021 Accounting for bills of exchange starts when the drawer draws a bill and the drawee accepts it. Noting The actions of the notary public, such as the noting of re-presentments of bills, facts, and reasons for dishonor of the bill itself or a slip of paper attached to the bill is called noting. Bill sent for collection should not be confused with discounting of bill. It makes the Seller liable for payment. Maker is also known as promsior.