Chapter No. 2
Define bill of exchange?
“A bill of exchange is an instrument in writing containing an unconditional order by one person (seller) to another person (purchaser) signed by the both parties having fixed amount payable after fixed future Time.”
How many parties involves in bill of exchange?
There are three parties involve in bill of exchange
- Drawer
- Drawee
- Payee
Define drawer, drawee and payee?
- Drawer: the person who writes/draw the bill of exchange. He is the seller/Debtor.
- Drawee: the person to whom the bill is drawn
- Payee: the person who receives the amount of bill is called payee. He may be drawer, bank or endorsee.
Difference between inland bill and foreign bill
Inland bill are drawn in a country upon person same country.
Foreign bill is drawn in a drawn in one country and payable in another country.
Define promissory notes?
An instrument in writing containing an unconditional promise by the maker (purchaser) to pay a certain sum of money only to other person (seller) after fixed future time period.
How many parties involves in promissory notes?
They are two parties to a promissory note.
- The maker (purchaser)
- The payee (seller)
Tenor
Tenor is period of time after which a bill becomes payable, also called duration of bill.
How many kind of acceptance?
There are two types of acceptance
General acceptance when accept the bill without any condition.
Qualified acceptance when accept is accept with condition/qualification (time, place).
Define bill receivable and bill payable?
When a bill is written then a bill from the view of drawer is bill receivable
When a bill is written then a bill form the view of drawee is called bill payable
Define grace days
It is customary to allow three days of grace to the drawee to pay the amount in the case of a term bill.
Holder of the Bill
Holder of a bill means that Drawer, Endorsee and bank whole is entitled to receive the payment on due date.
Define discounting a bill
If the holder of a bill is in need of money before the due date of bill he may sell it to the bank. The bank will give cash after deduction of some charges.
e.g A draw the bill on B, A is drawer and B is drawee. When A Discount the Bill form Bank is Called discounting of Bill.
Define the endorsement of a bill
Endorsement of the bill means when drawer transfer the bill to his creditor for settlement of debts.
A draw the bill on B, A is drawer and B is drawee. When A endorsee Bill to C. C is Endorsee.
When a bill become dishonored
When Drawee fail/refuse to make the payment on the due date is called dishonour of bill
e.g A draw the bill on B, A is drawer and B is drawee. When B Fail to Make the Payment is called Dishonoured of Bill.
Notary Public
Notary Public is an officer who maintains record of then Dishonour Bills.
Define noting charges
In case of bill dishonored the notary pubic will charge a small fee from the holder of the bill This fee is known as noting charges.
What is meant by retiring of a bill
Retiring a bill means making payment before of maturity of the bill
e.g A draw the bill on B, A is drawer and B is drawee. When B make the payment before date.
Define Trade Bill
Trade bill is drawn and accept on Credit purchase and sale of goods.
Define accommodation bill.
accommodation bill drawn to help or to accommodate someone for certain period.
Insolvency
Insolvency mean the on the due date of the bill, the person is unable to pay the whole the bill.
Renewal of bill
Drawee request the drawer to issue new bill with condition to cancel the old bill before due date by paying some interest.
Drawer/Creditor/Seller Drawee account/Debtor/Purchaser
· This process start from credit sales
Sales account XXX Purchases account XXX
Drawee account XXX Drawer account XXX
· Now draw a bill
Bill receivable XXX Drawer account XXX
Drawee account XXX Bill Payable XXX
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