October 17, 2018

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Bills of Exchange

ACCOUNTING FOR INCOMPLETE RECORDS
  • Bills of Exchange

Bills of Exchange Meaning 

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According to Sec. 5 of negotiable instrument act 1881, “ A bill of exchange is an instrument in writing containing an unconditional order signed by the maker directing to a certain person to pay a certain sum of money only to, or to the order of a certain person or to the bearer of the instrument.

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  • Parties to Bills of Exchange.
    • Drawer
    • Drawee
    • Payee
  • Advantages of Bills of Exchange.
  1. Source of finance.
  2. Debt discharge instrument.
  3. Evidence of indebtedness.
  4. Means of remittance.
Basis Bill of Exchange Promissory Notes
Liability Liability of a drawer is conditional. Liability of a drawer is absolute.
Parties

 

Three parties are involved –drawer,  drawee and payee. Two parties are involved –maker  and payee.
Payable to bearer

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It can be payable to bearer. It cannot be payable to bearer.
Order Order given by creditor to debtor. Order given by debtor to creditor.
Identity Drawer and payee may be the same person. Maker and payee cannot be the same person.

 Points to remember.

1)      Usually the term of the bill does not exceed 90 days from the date of the bill with a grace period of 3 days.

2)      When the due date is the holiday the preceding date will be the due date.

3)      Bill at sight means the instrument in which no time for payment is mentioned.

4)      Promissory notes or cheques can be dishonored by non-payment only.

5)      Noting is the recording of a fact of dishonor by a notary public.

6)      Accommodation Bills refers to those bills which can be drawn, accepted or endorsed without any consideration.

7)      Rebate on retirement of a bill is an income for the drawee and is an expense for the payee.

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8)      In case of renewal of bill, interest for the extended period is either paid in cash or is included in the amount of new bill.

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