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Journal Entry for Bill of Exchange
Bill of exchange is an instrument in writing signed by the maker which contains an order without any conditions. It directs another person to pay a specific sum of money to the bearer of the instrument (or) to a particular person (or) to the order of a particular person. Journal entry for bill of exchange is posted differently in the books of both drawee and the drawer.
A valid bill of exchange acts as a bill receivable for the drawer (Issuer) and bill payable for the drawee (Acceptor).
Journal Entry in the Books of Drawer
Accounting in the books of drawer at different stages is shown as follows;
When the sale of goods on credit is recorded in books of the drawer.
Bhushan A/C - Dr - 50,000
To Sales A/C - Cr - 50,000
When credit sales are recorded in the books of drawer
When a valid and accepted bill of exchange is received against the above credit sale.
Bills Receivable A/C - Dr - 50,000
To Bhushan A/C - Cr - 50,000
Journal entry when bill is received from drawee
When payment is received, journal entry for bill of exchange is:
Bank A/C - Dr - 50,000
To Receivable A/C - Cr - 50,000
Journal entry when payment is received after maturity of a bill of exchange
Journal Entry in the Books of Drawee or Acceptor
Accounting in the books of drawee/acceptor at different stages is shown as follows;
When the purchase of goods on credit is recorded in books of the drawee/acceptor.
Purchase A/C - Dr - 50,000
To Ajay A/C - Cr - 50,000
Journal entry in books of drawee - purchase of goods on credit
When a valid and accepted bill of exchange is provided for the above credit purchase.
Ajay A/C - Dr - 50,000
To Bills Payable A/C - Cr - 50,000
Journal entry in books of drawee - when bill is given to drawer
When payment is made, the journal entry for bill of exchange is:
Bills Payable A/C - Dr - 50,000
To Bank A/C - Cr - 50,000
Journal entry when payment is made at maturity of a bill of exchange