Chapter No. 16 – Accounting for Bills of Exchange – Solution
A bill of exchange is an instrument that contains a promise to pay some amount of money to a certain person after a certain period of time. It is generally drawn by the creditor(maker or drawer) on his debtor(acceptor or drawee) and the debtor gives the acceptance that he will pay the money to the maker(drawer) after some certain period or a specific date. It should be accepted by the person to whom it is created or by another person on his/her behalf. Without acceptance, this document doesn’t have any value.
The Parties Involved in the Bill of exchange:-
There are three parties are involved, shown as follows:-
1. Drawer: –
The drawer is the person who makes the bill of exchange on his/her debtor and he will also a receiver of the money mention in it. The seller of goods and services is known as a drawer (expect some cases will explain further).
2. Drawee: –
The drawee is the person to whom the bill of exchange created and he will pay the amount mention in it at the time of maturity of a bill. The purchase of goods and services is known as a drawee (expect some cases will explain further). The Drawee is also known as acceptor because he gives the acceptance to pay the mentioned amount on the mentioned date or after a specific period.
3. Payee: –
The person to whom the payment is made is known as the payee. basically, the drawer of the bill is known as the payee but in some cases in which the bill is not retained by the drawer himself then the payee will be the person who has a bill. In the following cases the drawer will not be treated as a 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.