Question

what does bill for collection mean and explain the journal entries relating to bill for collection?

Answer 1

A Bill for Collection is a useful instrument where the exporter is willing to dispatch goods based on an agreed period of credit to the importer.  For the importer, this is a lower cost alternative than a letter of credit.

Using the Bill for Collection method of payment means relevant documents are sent by the exporter, through Standard Bank RDC, to the importer.

The exporter’s bank forwards documents and a collection order to Standard Bank RDC for release to the importer against acceptance of the bill of exchange or immediate payment.

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.

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.

Journal entry when bill is received from drawee

When payment is received, journal entry for bill of exchange is;

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.

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.

Journal entry in books of drawee - when bill is given to drawer

When payment is made, the journal entry for bill of exchange is;

Journal entry when payment is made at maturity of a bill of exchange