Bills of Exchange

Here drawer has four options

1. Retain the bill till due date
2. Discounting the bill from bank
3. Bank for collection
4. Endorsement

1.Retain the bill till due date

Drawer/Creditor/Seller                                                         Drawee account/Debtor/Purchaser

Cash account                                                                                       Bill payable

            Bill receivable                                                                                     Cash account

2.Discounting the bill from bank

Here make sure of  two things that first transaction is between bank and drawer because drawer discounted the bill from bank and then between bank and drawee

Drawer/Creditor/Seller         Drawee account/Debtor/Purchaser                         Bank

Bank account                                                                                                   Bill receivable

Discount account                                                                                                         Cash a/c                      Bill receivable                                                                                              Discount a/c

                                                            Bill Payable                                         Cash account

                                                                        Cash account                                      Bill receivable

3.Bank for collection

Here case is different because you people are just giving the bill to bank for collection but not giving the possession of bill so following entries is passing

Drawer/Creditor/Seller         Drawee account/Debtor/Purchaser                         Bank

Bank for collection                                                                                                  No entry

                        Bill receivable                                                                                    

When bank collect the bill just bank charges from that money

Bank account                                                  Bill payable                             Cash account

Bank charges                                                               Cash account                     Drawer account                 Bank for collection                                                                                         Bank charges

4.Endorsement         

Drawer/Creditor/Seller         Drawee account/Debtor/Purchaser                         Endorsee

Endrosee a/c                                                                                        Bill receivable

            Bill receivable                                                                                                 Drawer a/c

                                                           

Bill payable account                          Cash account

                                                                        Cash account                                    Bill receivable

Journal entries for dishonored of bills

·         Retain the bill till due date

Drawer/Creditor/Seller                                                         Drawee account/Debtor/Purchaser

Drawee account                                                                                  Bill payable

            Bill receivable                                                                                     Drawer account

·         Discounting the bill from bank

Drawer/Creditor/Seller         Drawee account/Debtor/Purchaser                         Bank

Drawee account                                  Bill payable                                         Drawer account                       Bank account                                                Drawer account                                Bill receivable

·         Bank for collection

Drawer/Creditor/Seller         Drawee account/Debtor/Purchaser                         Bank

Drawee account                                  Bill payable

Bank for collection                                   Drawer account                                   No entry

·         Endorsement      

Drawer/Creditor/Seller         Drawee account/Debtor/Purchaser                         Endorsee

Drawee account                                  Bill payable                                         Drawer account           Endorsee account                                    Drawer account                                 Bill receivable

When noting charges are paid then only cash is shown in the accounts of party which has paid these charges so these entries in aspects of noting charges are as follow but these charges are received by drawee in future and drawee gives the name of trade expenses.

·         Retain the bill till due date

Here cash is paid by self because bill has been retained by drawer himself

Drawer/Creditor/Seller                                                         Drawee account/Debtor/Purchaser

Drawee account                                                                                  Bill payable

Bill receivable                                                                         Trade Expenses     

Cash account                                                                                       Drawer account

·         Discounting the bill from bank

Here charges are paid by bank so

Drawer/Creditor/Seller         Drawee account/Debtor/Purchaser                         Bank

Drawee account                                  Bill payable                                         Drawer account

Bank account                                      Trade expenses                                    Bill receivable

 Drawer account                                  Cash account

Bank for collection

Drawer/Creditor/Seller         Drawee account/Debtor/Purchaser                         Bank

Drawee account                                  Bill payable

Bank for collection                                   Drawer account                                   No entry

·         Endorsement      

Drawer/Creditor/Seller         Drawee account/Debtor/Purchaser                         Endorsee

Drawee account                                  Bill payable                                         Drawer account           Endorsee accont                                    Drawer account                                 Bill receivable

When first time bill is drawn

Drawer/Creditor/Seller                                                         Drawee account/Debtor/Purchaser

Drawee account                                                                                  Bill payable

            Bill receivable                                                                                     Drawer account

On request of drawee a new bill is drawn

Pass the journal entry for interest

            Drawee account                                                                      Interest or cash account

                        Interest or cash account                                                          Drawer account

Then pass here a simple journal entry as above

Drawee account                                                                                  Bill payable

            Bill receivable                                                                                     Drawer account

·         Retain the bill till due date

Drawer/Creditor/Seller                                                         Drawee account/Debtor/Purchaser

Cash account                                                                                       Bill payable

Rebate account                                                                                               Cash account

            Bill receivable                                                                                     Rebate account