Before discussing the numerous ways to understand and solve accounting treatment of bills of exchange homework answers, first I would like to give a brief introduction to the topic of discussion that is accounting treatment of bills of exchange.
What is a bill of exchange?
A bill of exchange is a written order that is exchanged between two parties where one party orders the other to pay a certain amount of money unconditionally either immediately or within a certain period of time. The party who makes the bill is called the drawer and the party that accepts the bill is known to be the drawee. The drawee, on accepting the bill, has to make payment of the sum mentioned in the bill within a stipulated time. The bill is often regarded as a draft or check. The bill of exchange is the most common way of payment and is used in various trading systems internationally.
What are the properties of bills of exchange?
- It must be in writing.
- It is an order which is usually unconditional.
- It must be signed by the drawer.
- The amount of payment must be fixed and mentioned.
- The due date within which the bill is to paid should be mentioned.
- The bill should be stamped as per the law requirements.
What is meant by Accounting Treatment of Bills of Exchange?
In case of business several bills of exchange are exchanged between the drawer and the drawee. Specific books or journals keep records of these bills of exchange. These journals are also known as bill receivable journal and bill payable journals. The journals help in accounting both the bill receivable amount and bill payable amount.
Each bill has two aspects, as to the drawer who should receive a certain amount; the bill receivable is acceptable and to the party that must pay the bill, the bill payable is accepted. Once the bill receivable is recorded in the journal it as almost equivalent to money to the bill drawer as it is assured that it would take the form of money within the due date of the bill. The accept or of the bill on the other hand must have acquired resources in exchange of the amount mentioned in the bill and must arrange to pay the amount in full within the specified due date.
Here I am going to explain how students can overcome any challenges for solving Accounting Treatment of Bills of Exchange Homework Answers, but before that certain things about the accounting treatment must be to the students.
In case of accounting treatment of bill exchange there are mainly 5 heads that include:
- Bill is honored on the due date
- Bill is dishonored on the due date
- Renewal of bill
- Retiring of bill
- Insolvency of Accept or
In the first case, the accounting treatment is done based on the assumption that the bill is honored when it should mature. It can be handled in various ways such as bill can be retained till the date of the maturity, or the bill can be discounted from the bank, or bill may be sent for collection and many more. The second case arises when the accept or refuses to pay the amount of the bill to the drawer on the maturity of the bill. Â For renewal of bill the accept or may request for a renewal but he usually has to pay a hefty amount as interest along with the bill amount if the bill due date is extended. This interests may be charged daily, weekly, or even monthly depending on the amount of extension of the bill due date. Retirement of bill occurs when the bill is paid fairly within the due date which also results in the drawer allowing a rebate on the total bill amount.
How to get Accounting Treatment of Bills of Exchange Homework Answer helps easily?
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