BILL OF EXCHAGE

Bill of exchange                                                                    Chapter no 2

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Bill of exchange and parties involve in bill of excahnge
“A bill of exchange is an instrument in writing containing an unconditional order by one person (seller) to another person (purchaser) signed by the both parties having fixed amount payable after fixed future Time.” Normally three parties are involve in bill of exchange 1.drawer: the person who writes/draw the bill of exchange. He is the seller/Debtor. 2.Drawee: the person to whom the bill is drawn. 3.Payee: the person who receives the amount of bill is called payee. He may be drawer, bank or endorsee. Normally two types of bills are in bill of exchange Inland bill are drawn in a country upon person same country. Foreign bill is drawn in a drawn in one country and payable in another country.

Promissory notes and parties involve in promissory notes
An instrument in writing containing an unconditional promise by the maker (purchaser) to pay a certain sum of money only to other person (seller) after fixed future time period. They are two parties to a promissory note,  maker (purchaser) and payee (seller)

How many kind of acceptance? 

There are two types of acceptance

1.General acceptance when accept the bill without any condition.      

2.Qualified acceptance when accept is accept with condition/qualification (time, place).

Define bill receivable and bill payable?

When a bill is written then a bill from the view of drawer is bill receivable

When a bill is written then a bill form the view of drawee is called bill payable

Important terms of bill of exahnge
Tenor: Tenor is period of time after which a bill becomes payable, also called duration of bill. Grace days It is customary to allow three days of grace to the drawee to pay the amount in the case of a term bill. Holder of the Bill: Holder of a bill means that Drawer, Endorsee and bank whole is entitled to receive the payment on due date. Discounting a bill: If the holder of a bill is in need of money before the due date of bill he may sell it to the bank. The bank will give cash after deduction of some charges. e.g A draw the bill on B, A is drawer and B is drawee. When A Discount the Bill form Bank is Called discounting of Bill.

Endorsement of a bill:Endorsement of the bill means when drawer transfer the bill to his creditor for settlement of debts. A draw the bill on B, A is drawer and B is drawee. When A endorsee Bill to C. C is Endorsee. When a bill become dishonored When Drawee fail/refuse to make the payment on the due date is called dishonour of bill e.g A draw the bill on B, A is drawer and B is drawee. When B Fail to Make the Payment is called Dishonoured of Bill. Notary Public Notary Public is an officer who maintains record of then Dishonour Bills. Define noting charges In case of bill dishonored the notary pubic will charge a small fee from the holder of the bill This fee is known as noting charges.

What is meant by retiring of a bill Retiring a bill means making payment before of maturity of the bill e.g A draw the bill on B, A is drawer and B is drawee. When B make the payment before date. Define Trade Bill Trade bill is drawn and accept on Credit purchase and sale of goods.

Accommodation bill. accommodation bill drawn to help or to accommodate someone for certain period. Insolvency Insolvency mean the on the due date of the bill, the person is unable to pay the whole the bill. Renewal of bill Drawee request the drawer to issue new bill with condition to cancel the old bill before due date by paying some interest.

Drawer/Creditor/Seller                                                         Drawee account/Debtor/Purchaser

·         This process start from credit sales

Sales account                          XXX                                       Purchases account       XXX

            Drawee account                      XXX                                   Drawer account               XXX

·         Now draw a bill

Bill receivable                         XXX                                       Drawer account             XXX

            Drawee account                      XXX                                       Bill Payable                             XXX

Here drawer has four options

1. Retain the bill till due date
2. Discounting the bill from bank
3. Bank for collection
4. Endorsement