Concept of a bill under rebate
The payment of a bill of exchange is made once its specified period comes to an end. A drawee can even make his necessary payment to his creditor much before a bill’s date of maturity. In such situations, where a drawer is able to receive his payment before the date of maturity of his bill of exchange, he allows some discount to his drawee as a customary business practice. This discount offered on a bill is termed as “rebate.”
There are two logics behind the practice of rebate.
Calculating the amount of rebate
The calculation of an amount of rebate can be of two types-
A rebate offered, has its effect both on a drawee as well as his drawer. Thus, there should be journal entries in the books of both drawer and drawee. While it will be an expense to the drawer, it will be a profit to his drawee. Along with the cash account, his rebate account will be debited in the books of a drawer. On the other hand, a drawee will credit his cash account along with his rebate account.
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