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Contents:
Sometimes
the acceptor of a bill of exchange desires to meet the
bill before its maturity if he has sufficient funds at
his disposal. He may ask the holder of the bill to
accept the payment before the due date. If the holder
agrees to his proposal (obviously he welcomes it), he
will withdrew the bill. Such a withdrawal is called
"retirement of a bill of exchange". The holder generally
allows the acceptor a rebate or discount for the
unexpired period of the bill. This rebate is discount is
an expense for the holder and a revenue for the acceptor
of the bill. The accounting treatment is similar to cash
discount.
When a
bill of exchange is retired by an acceptor, the
following entry is made in books of the holder:
Cash
A/C...................Dr. (with actual
amount of cash received)
Rebate A/C................Dr. (amount
of rebate allowed)
Bill receivable A/C
(full amount of bill)
In the
books of acceptor, the following entry is passed:
Bill
payable A/C...........Dr. (with full
amount)
Cash A/C
(amount actually paid)
Rebate A/C
(rebate earned)
On 1st
Jan. 2005, A sold goods to B worth $5,000 and drew a
bill on B for $5,000 at three months. One month
before its maturity B asked A that he wanted to make
payment of the bill immediately, to which A agreed
and also allowed him rebate of 6% p.a.
Required:
Give journal entries in the books of A and B.
Solution:
A's Journal
|
Date |
Particulars |
L.F |
Amount (Dr.) |
Amount (Cr.) |
|
1.1.2005 |
B
A/C................................................Dr.
Sales A/C
(Goods sold on credit basis) |
|
5,000 |
5,000 |
|
1.1.2005 |
Bill
receivable
A/C...............................Dr.
B A/C
(Acceptance received at three months) |
|
5,000 |
5,000 |
|
4.3.2005 |
Cash
A/C...........................................Dr.
Rebate
A/C........................................Dr.
Bill receivable A/C
(Bill retired by the acceptor under a rebate
of 6% p.a.) |
|
4975
25 |
5,000 |
S's Journal
|
Date |
Particulars |
L.F |
Amount (Dr.) |
Amount (Cr.) |
|
1.1.2005 |
Purchases
A/C.....................................Dr.
A A/C
(Goods purchased on credit) |
|
5,000 |
5,000 |
|
1.1.2005 |
A
A/C.................................................Dr.
Bill payable A/C
(Acceptance given at three months) |
|
5,000 |
5,000 |
|
4.3.2005 |
Bill payable
A/C...................................Dr.
Cash A/C
Rebate A/C
(Bill retired under rebate one month before
its maturity) |
|
5,000 |
4,975
25 |
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