Bills of Exchange / Bills Payable (B/P): –
As we already discussed in the previous topic, Bills of Exchange ( Bills Payable) is an instrument in writing form which is signed by the accepter (known as Drawee), directing a certain person (known as Drawer) to pay a certain amount against the purchase of goods and services. In other words, it is an instrument of debt written by the seller of goods and services and accepted by the buyer of goods and services.
Bills of Exchange are Bills Receivable for the seller(drawer) and Bills Payable for the buyer (drawee).
Bills Receivable is as assets and Bills Payable is the Liabilities.
It is used as security where both the parties (Seller & buyer) don’t know each other, also discountable from the bank if drawer/seller ready to pay some amount of interest to the bank, also transferable to the creditor.
Parties involved in the B/P
The three parties involved in the B/P shown below: –
1. Drawer: –
A Drawer is a person who sells goods and services or who draws a bill.
2. Drawee: –
A Drawee is a person who purchases goods and services or who accepts a bill.
3. Payee: –
A payee is a person to whom the payment is to be made.
The format of Bills Payable Book: –
The format of B/P book shown below: –
We are taking the same example from the previous topic to understand better, in this we will post all journal entries in the books of Drawee: –
Suresh wants to purchase goods but he did not have liquid cash to pay for goods and he did not know any seller of this type of goods. He went to the market and met with Mr. Ramesh. He is asking him for a security proof of payment then Mr. Suresh told him that draw a bill Receivable on me, I will accept it.
So, Suresh feels secure with B/R, he accepts the deal.
01/04/2018 Ramesh Sold goods to Suresh for Rs. 10,000/- on credit and he draw a bill for 3 Months. Ramesh accepts the B/R On maturity B/R met.
Journal Entry for it shown below:
In the Books of Mr. Suresh ( Drawee )
1. Sold goods for Rs 10,000/-
01/04/2018 Purchase A/c Dr. 10,000
To Ramesh A/c 10,000
(Being Goods purchased from Ramesh )
2. Acceptance of B/R received from Suresh
01/04/2018 Ramesh A/c Dr. 10,000
To B/P A/c 10,000
(Being acceptance given )
3. On Maturity: payment met
04/07/2018 B/P A/c Dr. 10,000
To Bank A/c 10,000
(Being payment made against B/P on maturity )
*Note: Maturity Date will we calculated as following
|Date of accepting B/R||01/04/2018|
|Add: Period of B/R||3 Periods|
|Add: 3 Days of grace||3 Days|
We have only single B/P, I will show u how to post it into the B/P Books
If you have any question about this topic of Petty Cash Book please ask it in the comment section below.
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