What does "Bill of exchange (BOE): Meaning and Examples" cover?

Today we are covering the conceptual topic of the Bill of Exchange. So please read it very consciously and in this article, you will learn the meaning of the…

Who is this guide meant for?

Class 11 and Class 12 commerce students, and CA Foundation aspirants, studying Financial Accounting.

Can I test myself on "Bill of exchange (BOE): Meaning and Examples"?

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Bill of exchange (BOE): Meaning and Examples

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Quick Overview & Key Takeaways

Focus Topic:Bill of exchange (BOE): Meaning and Examples

Estimated Reading Time:15 mins

Today we are covering the conceptual topic of the Bill of Exchange. So please read it very consciously and in this article, you will learn the meaning of the…
Syllabus-aligned study material with detailed definitions, formats, and practical examples.
Interactive check: Includes a custom practice quiz at the bottom of the article to self-evaluate knowledge.

What is Bill of Exchange?

Definition:

-Section 5 of India's Negotiable Instruments Act, 1881

The feature of the Bill of Exchange: -

It should be in writing.
In order to make a payment on the specific date or after a certain period.
An unconditional order of payment, it does not contain any condition of payment.
A certain amount should be described in it.
It must be signed by both parties Drawer (maker) and Drawee.
The amount must be payable to either a certain person or on his/her behalf.
It should be paid on the date of maturity or on-demand or on mutual understanding.

The Parties Involved in the Bill of exchange:-

Drawer
Drawee
Payee

1. Drawer: -

2. Drawee: -

3. Payee: -

When the bill is discounted by the drawer from the bank then the bank will be treated as a payee.
When the drawer endorsed the bill to his/her creditor then the receiver of that bill will be treated as a payee.

Contents of Bills of Exchange: -

1. Title of Bill: -

2. Date of drawn: -

3. Amount to be paid: -

4. Date of Maturity or Term: -

5. Unique Identification Number: -

6. Name of Both Parties: -

7. Signature of Both parties: -

The format of Bills of Exchange: -

S. No.	Transactions	In the Books of Drawer	In the Books of Drawee
1	When goods sold to Mr Y by Mr X.	Y's A/c	Dr.	Purchase A/c	Dr.
To Sales A/c	To X's A/c
(Being goods sold to Mr Y, on credit )	(Being goods Purchase from Mr X, on credit )
2	Bill is drawn by Mr X, on the Mr Y and duly accepted by the Mr Y	Bills Receivable A/c	Dr.	X's A/c	Dr.
To Y's A/c	To Bills Payable A/c
(Being the acceptance received of the bill receivable from Mr Y)	(Being acceptance of the bill given to Mr X )
3	On maturity, the bill is duly paid by the Mr Y	Bank A/c	Dr.	Bills Payable A/c	Dr.
To Bills receivable A/c	To Bank A/c
(Being payment received against the bill receivable)	(Being payment made against the bills receivable )

S. No.	Transactions	In the Books of Drawer	In the Books of Drawee
3	Bill is discounted by the drawer from the bank	Bank A/c	Dr.	No entry
Discount A/c	Dr.
To Bills Receivable A/c
(Being BR discounted from the Bank A/c before the maturity date)
3	On maturity, the bill is duly paid by the Mr Y	No entry		Bills Payable A/c	Dr.
	To Bank A/c
	(Being payment made against the bills receivable )

S. No.	Transactions	In the Books of Drawer	In the Books of Drawee
3	Bill is endorsed by the drawer to his/her Creditor.	Z's A/c	Dr.	No entry
To Bills Receivable A/c
(Being B/R endorse to Mr Z)
3	On maturity, the bill is duly paid by the Mr Y	No entry		Bills Payable A/c	Dr.
	To Bank A/c
	(Being payment made against the bills receivable )

S. No.	Transactions	In the Books of Endorsee
3	Bill is endorsed by the drawer to his/her Creditor.	Bills Receivable A/c	Dr.
To X's A/c
(Being B/R received from Mr X)
3	On maturity, the bill is duly paid by the Mr Y	Bank A/c	Dr.
To Bills receivable A/c
(Being payment received against the bill receivable)

S. No.	Transactions	In the Books of Drawer	In the Books of Drawee
3	Bill sent for collection to the bank by Mr X.	Bill sent for collection A/c	Dr.	No entry
To Bills Receivable A/c
(Being B/R endorse to the Mr Z)
3	On maturity, the bill is duly paid by the Mr Y	Bank A/c	Dr.	Bills Payable A/c	Dr.
To Bill sent for collection A/c	To Bank A/c
(Being payment collected by the bank against the bill receivable)	(Being payment made against the bills receivable )

S. No.	Transactions	In the Books of Drawer	In the Books of Drawee
3	Retain by the drawer, till the date of maturity	Y's A/c	Dr.	Bills Payable A/c	Dr.
To Bills Receivable A/c		Noting Charges A/c	Dr.
To Cash A/c (noting charges If any)	To X's A/c
(Being B/R dishonoured on the maturity and noting charges paid to the bank)	(Being B/P dishonoured on the maturity and noting charges paid to the bank by Mr X )

S. No.	Transactions	In the Books of Drawer	In the Books of Drawee
3	A bill discounted by the drawer from the bank before the maturity date.	Y's A/c	Dr.	Bills Payable A/c	Dr.
To Bank A/c		Noting Charges A/c	Dr.
(add: noting charges If any)	To X's A/c
(Being B/R dishonoured on the maturity and noting charges paid to the bank)	(Being B/P dishonoured on the maturity and noting charges paid to the bank by Mr X )

S. No.	Transactions	In the Books of Drawer	In the Books of Drawee
3	Endorse the bill by the drawer to his/her creditor	Y's A/c	Dr.	Bills Payable A/c	Dr.
To Z's A/c		Noting Charges A/c	Dr.
(add: noting charges If any)	To X's A/c
(Being B/R dishonoured on the maturity and noting charges paid by Mr Z to the bank)	(Being B/P dishonoured on the maturity and noting charges paid to the bank by Mr X )

S. No.

Transactions

In the Books of Drawer

In the Books of Drawee

Endorse the bill by the drawer to his/her creditor

Y's A/c

Dr.

Bills Payable A/c

Dr.

To Z's A/c

Noting Charges A/c

Dr.

(add: noting charges If any)

To X's A/c

(Being B/R dishonoured on the maturity and noting charges paid by Mr Z to the bank)

(Being B/P dishonoured on the maturity and noting charges paid to the bank by Mr X )

S. No.	Transactions	In the Books of Endorsee
3	On maturity, the bill is duly paid by the Mr Y	X's A/c	Dr.
To Bills Receivable A/c
To Cash A/c (noting charges If any)
(Being B/R dishonoured on the maturity and noting charges paid to the bank)

S. No.

Transactions

In the Books of Endorsee

On maturity, the bill is duly paid by the Mr Y

X's A/c

Dr.

To Bills Receivable A/c

To Cash A/c (noting charges If any)

(Being B/R dishonoured on the maturity and noting charges paid to the bank)

S. No.	Transactions	In the Books of Drawer	In the Books of Drawee
3	Endorse the bill by the drawer to his/her creditor	Y's A/c	Dr.	Bills Payable A/c	Dr.
To Bill sent fro collection A/c	Noting Charges A/c	Dr.
To Bank A/c (noting charges If any)	To X's A/c
(Being B/R dishonoured on the maturity and noting charges paid to the bank)	(Being B/P dishonoured on the maturity and noting charges paid to the bank by Mr X )

S. No.

Transactions

In the Books of Drawer

In the Books of Drawee

Endorse the bill by the drawer to his/her creditor

Y's A/c

Dr.

Bills Payable A/c

Dr.

To Bill sent fro collection A/c

Noting Charges A/c

Dr.

To Bank A/c (noting charges If any)

To X's A/c

(Being B/R dishonoured on the maturity and noting charges paid to the bank)

(Being B/P dishonoured on the maturity and noting charges paid to the bank by Mr X )

S. No.	Transactions	In the Books of Drawer	In the Books of Drawee
1	Cancellation of the Old bill	Y's A/c To Bills Receivable A/c (Being old bill cancelled before the maturity date )	Dr.	Bills payable A/c To X's A/c (Being old bills payable cancelled before the maturity date )	Dr.
2	Interest charges on the amount of the bill for the extended period. if paid in cash by Mr Y	Cash A/c To Interest A/c (Being interest received on the amount due from Mr Y)	Dr.	Interest A/c To Cash A/c (Being interest paid to Mr x on the amount due to him )	Dr.
2	If interest not paid in cash	Y's A/c To Interest A/c ( Being interest due on the amount due from Mr Y )	Dr.	Interest A/c To X's A/c (Being interest due to Mr X )	Dr.
3.	When the new bill received from Mr Y	Bills Receivable A/c To Y's A/c (Being acceptance received of the new bill)	Dr.	X's A/c\| To Bills Payable A/c (Being acceptance given for new bill )	Dr.

S. No.

Transactions

In the Books of Drawer

In the Books of Drawee

Cancellation of the Old bill

Y's A/c

To Bills Receivable A/c

(Being old bill cancelled before the maturity date )

Dr.

Bills payable A/c

To X's A/c

(Being old bills payable cancelled before the maturity date )

Dr.

Interest charges on the amount of the bill for the extended period. if paid in cash by Mr Y

Cash A/c

To Interest A/c

(Being interest received on the amount due from Mr Y)

Dr.

Interest A/c

To Cash A/c

(Being interest paid to Mr x on the amount due to him )

Dr.

If interest not paid in cash

Y's A/c

To Interest A/c

( Being interest due on the amount due from Mr Y )

Dr.

Interest A/c

To X's A/c

(Being interest due to Mr X )

Dr.

When the new bill received from Mr Y

Bills Receivable A/c

To Y's A/c

(Being acceptance received of the new bill)

Dr.

X's A/c|

To Bills Payable A/c

(Being acceptance given for new bill )

Dr.

S. No.	Transactions	In the Books of Drawer	In the Books of Drawee
1	When Y paid cash for the bills before the due date.	Cash A/c Rebate A/c To Bills Receivable A/c (Being Bill retire before the due date and allow the rebate)	Dr.Dr.	Bills payable A/c To X's A/c To Rebate A/c (Being Bill retire before the due date and received the rebate)	Dr.

S. No.

Transactions

In the Books of Drawer

In the Books of Drawee

When Y paid cash for the bills before the due date.

Cash A/c Rebate A/c

To Bills Receivable A/c

(Being Bill retire before the due date and allow the rebate)

Dr.Dr.

Bills payable A/c

To X's A/c

To Rebate A/c

(Being Bill retire before the due date and received the rebate)

Dr.

Bill of exchange (BOE): Meaning and Examples

Quick Overview & Key Takeaways

What is Bill of Exchange?

Definition:

The feature of the Bill of Exchange: -

The Parties Involved in the Bill of exchange:-

1. Drawer: -

2. Drawee: -

3. Payee: -

Contents of Bills of Exchange: -

1. Title of Bill: -

2. Date of drawn: -

3. Amount to be paid: -

4. Date of Maturity or Term: -

5. Unique Identification Number: -

6. Name of Both Parties: -

7. Signature of Both parties: -

The format of Bills of Exchange: -

Accounting Treatment of Bills of Exchange: -

1. Bill is honoured on the maturity date: -

i. Retain by the drawer, till the date of maturity: -

ii. A bill discounted by the drawer from the bank before the maturity date: -

iii. Endorse the bill by the drawer to his/her creditor: -

In the books of endorsee: -

iv. The bill sent for collection: -

2. Bill is dishonoured on the maturity date:-

In the books of endorsee: -

3. Renewal of bill before the maturity date: -

4. Retiring of the bill: -

5. Insolvency of an acceptor: -

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