Definition and Explanation of
Renewal:
Sometimes, acceptor of a bill finds himself unable
to meet his acceptance on the due date. So he may
approach the drawer of the bill before the maturity
date arrives, to cancel the old bill and draw a new
bill with extended date. The acceptor in this case
will of course have to pay interest for the extended
period. Thus the cancellation of the old bill
maturity in return for a new bill (which includes
interest) for an extended period is called "renewal of a
bill of exchange".
There are two more ways to
renew a bill of exchange:

The acceptor pays
interest in cash and a new bill is accepted equal to
the amount of the old bill.

The acceptor pays a
part of the amount of the bill in cash and accepts a
new bill for the balance plus interest.
The renewal of the
bill under different conditions is explained with
the help of following examples:

On
1st Jan. 2005 A (the creditor) draws a bill for
$1,000 on his debtor B at 3 months. The due date
of the bill is 4th April. On 31st March the
acceptor (B) approaches the drawer (A) and shows
his inability to meet the bill. He requests the
drawer to cancel the old bill and to draw on him
a new bill for extended period. A agrees on the
condition that he will charge $20 as interest.
Thus a new bill is drawn for $1,000 + $20 =
$1020. The bill is accepted by B.

On
31st March, before the due date of the same
bill, B, the acceptor approaches the drawer and
shows his inability to meet the bill. He
requests the drawer to cancel the old bill and
to draw on him a new bill for an extended
period. A agrees on this condition that he will
charge $20 for interest. B pays $20 for interest
at the same time and accepts a new bill at 2
months for $1,000.

On
31st March, the acceptor (B) requests the drawer
for the cancellation of the old bill. A agrees.
B pays $500 in cash as a part of the amount of
the old bill and accepts a fresh bill for $510
(including $10 for interest) at two months (for
an extended period).
Difference Between Dishonor and
Renewal of a Bill of Exchange:
When a
bill is duly presented by the holder to the acceptor
on the due date and the acceptor refuses to meet the
bill, this is a case of dishonor of the bill. On the
other hand, if the acceptor approaches the drawer
himself and shows his inability to meet the bill and
requests the drawer to cancel the old bill and to
draw him a new bill for an extended period, it will
be a case of renewal of the bill. There is no
question of noting charges in renewal of the bill
because a bill is renewed with the mutual consent of
both the parties, i.e., the drawer and the acceptor.
Example:
X sold
goods to Y worth $30,000 on 1st March, 2005. Y
accepted a bill for three months drawn on him by X
on 1st March 2005. On 31st May, Y requested that the
bill be renewed for a further period of two months.
X agreed provided 10% interest p.a. would be
charged. X then drew a new bill for the amount of
original plus interest at 10% p.a. for two months. Y
accepted the new bill. On the due date the new bill
was honored.
Required:
Give journal entries in the books of X and Y.
Solution:
X's Journal
Date 
Particulars 
L.F 
Amount (Dr.) 
Amount (Cr.) 
1.3.2005 
Y
A/C...................................................Dr.
Sales A/C
(Goods sold on credit basis) 

30,000 
30,000 
1.3.2005 
Bill
receivable
A/C...............................Dr.
Y A/C
(Acceptance received at three months) 

30,000 
30,000 
31.5.2005 
Y
A/C...................................................Dr.
Bill receivable A/C
(Old bill cancelled on acceptor's request) 

30,000 
30,000 
31.5.2005 
Y
A/C..................................................Dr.
Interest A/C
(Interest due from acceptor) 

500 
500 
31.5.2005 
Bill
receivable
A/C..............................Dr.
Y A/C
(New acceptance received) 

30,500 
30,500 
4.8.2005 
Cash
A/C............................................Dr.
Bill receivable A/C
(Cash received on maturity) 

30,500 
30,500 
Y's Journal
Date 
Particulars 
L.F 
Amount (Dr.) 
Amount (Cr.) 
1.3.2005 
Purchases
A/C.....................................Dr.
X A/C
(Goods purchased on credit) 

30,000 
30,000 
1.3.2005 
X
A/C.................................................Dr.
Bill payable A/C
(Acceptance given at three months) 

30,000 
30,000 
31.5.2005 
Bill payable
A/C...................................Dr.
X A/C
(Old bill cancelled for renewal purpose) 

30,000 
30,000 
31.5.2005 
Interest
A/C........................................Dr.
X A/C
(Interest payable to drawer) 

500 
500 
31.5.2005 
X
A/C.................................................Dr.
Bill payable A/C
(New acceptance given) 

30,500 
30,500 
4.8.2005 
Bill payable
A/C...................................Dr.
Cash A/C
(Cash paid on maturity) 

30,500 
30,500 
