Bills of Exchange class 11 NCERT Solution Accountancy Chapter 8
Bills of Exchange class 11 taken from NCERT Book Accountancy Chapter 8 there All the topics are covered and the definition and Important Points also discuss.
Bills of Exchange class 11 Introduction
A bill of exchange is a financial instrument widely used in commercial transactions, serving as a written order by one party to another, directing the latter to pay a specific sum of money to a third party at a predetermined future date. This instrument facilitates trade and commerce by providing a secure method of payment and credit. It typically involves three parties: the drawer (issuer of the bill), the drawee (party obligated to pay), and the payee (entity receiving the payment). Bills of exchange play a crucial role in international and domestic trade, enabling businesses to engage in transactions with deferred payments, enhancing flexibility in financial dealings.
Bills of Exchange class 11 Important Notes
- Parties Involved:
- Drawer: The party who issues or draws the bill, directing the drawee to pay a specified amount.
- Drawee: The party on whom the bill is drawn, obligated to make the payment.
- Payee: The entity to whom the payment is to be made.
- Contents of a Bill:
- A bill typically includes the date of issue, the amount to be paid, the name of the drawee, and the maturity date.
- Types of Bills:
- Sight Bill: Payable on demand when presented to the drawee.
- Time Bill: Payable at a specified future date.
- Acceptance:
- The drawee may formally accept the bill, indicating their commitment to make the payment. An accepted bill is known as an “accepted bill of exchange.”
- Endorsement:
- The payee can transfer the bill to another party through endorsement, which involves signing on the back of the bill.
Bills of Exchange class 11 Definition
A Bill of Exchange is a written financial document that serves as a formal order for payment, usually in the context of trade transactions.
Bills of Exchange class 11 Advantages and Disadvantages
Advantages of Bills of Exchange:
- Credit Facilities: They allow for the extension of credit between parties, enabling deferred payments and providing liquidity to businesses.
- Negotiability: Bills can be transferred from one party to another through endorsement, making them negotiable instruments that can change hands multiple times.
- Security: The formal nature of bills, including acceptance and endorsement, adds a layer of security to transactions, reducing the risk of default.
- Discounting: Businesses can avail themselves of financing options by discounting bills with banks, obtaining funds before the maturity date by paying a discount.
- Record of Transaction: Bills of exchange serve as legal and written evidence of a financial transaction, providing clarity and reducing the likelihood of disputes.
Disadvantages of Bills of Exchange:
- Risk of Non-Acceptance or Non-Payment: There is a risk that the drawee may refuse to accept or fail to make the payment when the bill matures, leading to financial loss for the drawer.
- Interest Costs: If a business chooses to discount a bill with a bank, it incurs interest costs in addition to the discount, affecting overall profitability.
- Dependence on Trust: Successful use of bills of exchange relies on a high level of trust between the parties involved. In the absence of trust, there may be reluctance to accept or endorse bills.
- Market Fluctuations: Changes in economic conditions, exchange rates, or market uncertainties can impact the effectiveness of bills of exchange in international trade.
Bills of Exchange class 11 Format
| [Letterhead or Logo of the Drawer] |
| [Date] |
| [Place of Issue] |
| **BILL OF EXCHANGE** |
| No: [Unique Bill Number] |
| **Payable at [Place of Payment]** |
| **Exchange for Value Received**, I, [Drawer’s Name and Address], hereby draw upon [Drawee’s Name and Address] the sum of [Amount in Words and Figures], payable to the order of [Payee’s Name and Address], on [Maturity Date]. |
| **Terms and Conditions:** |
| 1. This Bill of Exchange is valid for [Number of Days/Months] from the date of issue. 2. The drawee shall make the payment at [Place of Payment] on the maturity date mentioned above. |
| **Accepted: [Drawee’s Signature and Date]** |
| **Endorsed: [Payee’s Signature and Date]** |
| [Additional terms and conditions or clauses, if any] |
| **[Signature of the Drawer]** |
Explanation :
- The bill should start with the title “BILL OF EXCHANGE” in bold.
- Include a unique bill number and the date of issue.
- Specify the place where the payment is to be made (“Payable at [Place of Payment]”).
- Clearly state the amount in both words and figures.
- Outline the terms and conditions, including the maturity date and any additional clauses.
- Provide space for the acceptance by the drawee and endorsement by the payee.
- The drawer signs the bill at the bottom.
Bills of Exchanges class 11 Question and Answer
Question:1 write two points of distinction between bills of exchange and promissory note.
Answer
| Bills of Exchange | Promissory Note |
| A bill of exchange is an instrument in writing containing an unconditional order, signed by the maker directing a certain person to pay a certain amount of money only to, or the order of a certain person to the bearer of the instrument. | A Promissory note is an instrument in writing contaning an uncontaining undertaking signed by the maker to pay a certain sum of money only to, or to the order of a certain person or to the beare of the Instrument, |
| There are three parties involved namely, drawer, drawee and payee. | there are two parties involved, namely maker and payee. |
Question:2 what is meant by maturity of a bill of exchnage ?
Answer: The date calculated after adding 3 days of grace to the due date of a bill is called the date of maturity of a bill.it is to be noted that when a bill is to be payable on demand/at sight, then days of grace is not applicable when the period of a bill is mentioned in days, the maturity of bill is calculated in days. similarly when the period of a bill mentioned in months, the maturity of bill is calculated in months in certain cases, when the maturity date of any bill falls on a public holiday, then the maturity date of the bill will be the previous business day.
Question:3 what is meant by acceptance of a bill of exchange ?
Answer: A bill of exchange is a writen instrument which contains an unconditional order directing a person to pay a certain amount on an agreed date. In other words, it is drawn by the creditor on her/his debtors to make a payment of a certain amount on the mentioned date. such a bill comes into existence after the consent of both the parties. a bill cannot come into existence without the acceptance of a debtor hence the debtor of the has to accept the terms of the bill, sign the same and make it a legal document.
Bills of Exchanges class 11 Numerical Question and Answer
Question:1 On jan, 01, 2015 Rao sold goods Rs, 10,000 to Reddy. half of the payment was made immediately and for the remaining half Rao drew a bill of exchange upon Reddy payable after 30 days. Reddy accepted the bill and returned it to rao. on the due date Rao presented the bill to Reddy and received the payment. Journalise the above transactions in the books Rao and prepare of Rao’s account in the books of Reddy.
Answer
Book of Rao
Journal Entries
| Date | Particulars | L.F | Dr Rs, | Cr Rs. |
| 2015 jan 01 | Reddy A/c ——————-Dr To sales A/c (being: goods sold to Reddy) | 10,000 | 10,000 | |
| jan 01 | cash A/c ————–Dr To Reddy A/c (being: cash recieved from Reddy ) | 5,000 | 5,000 | |
| jan 01 | Bills Receivable A/c —————Dr To Reddy A/c (being: bill receievd and accepted from Reddy for 30 days ) | 5,000 | 5,000 | |
| Feb 03 | cash A/c —————Dr To bills Receivable A/c (being: Reddy’s acceptance on due date) | 5,000 | 5,000 |
Books of Reddy
Rao’s Account
| Date | particulars | L.F | Amount | Date | particulars | L.F | Amount |
| 2015 jan 01 | To cash A/c | 5,000 | 2015 jan 01 | by purchased A/c | 10,000 | ||
| jan 01 | To bills payable A/c | 5,000 | |||||
| 10,000 | 10,000 |
Question:2 On jan, 01, 2015 shankar purchased goods from parvati for Rs, 8,000 and immediately drew a promissory in favour of parvati after 3 months. on the date maturity of the promissory note, the Government of Indian declared holiday under the Negotiable Instrument Act 1881. since parvati was unware about the provision of the law regarding the date of maturity of the bill, she handed over the bill of her lawyer, who duly presented the bill and recieved the payment. the amount of the bill was handed over by the lawyer to parvati immediately .Record the necessary journal entries in the books of parvati and shankar.
Answer:
Book of Parvati
Journal
| Date | Particulars | L.F | Dr Amount | Cr Amount |
| 2015 Jan 01 | shankar A/c —————Dr To sales A/c (being: goods sold to shankar ) | 8,000 | 8,000 | |
| jan 01 | Bills Receivable A/c ————Dr To shankar A/c (being: promissory note received from shankar for three months. ) | 8,000 | 8,000 | |
| Apr 05 | Cash A/c —————-Dr To bills Receivable A/c (being: cash received for promissory note one day after the maturity date on account of holiday declared by govt.) | 8,000 | 8,000 |
Book of shankar
Journal
| Date | Particulars | L.F | Dr Amount | Cr Amount |
| 2015 jan 01 | purchases A/c ——————-Dr To parvati A/c (being: goods purchased from parvati) | 8,000 | 8,000 | |
| jan 01 | parvati A/c —————-Dr To bills payable A/c (being: promissory note for three months sent to parvati ) | 8,000 | 8,000 | |
| Apr 05 | bills payable A/c —————-Dr To cash A/c (being: cash paid on maturity promissory note) | 8,000 | 8,000 | |
Question:3 On Feb 01, 2015 John purchased goods for Rs, 15,000 from Jimmi he immediately made a payment of Rs, 5,000 by cheque and for the balance accepted the bill of exchange draw upon him by jimmi. the bill of exchange was payable after 40 days. five days before the maturity of the bill, jimmi sent the same to his bank for collection. the bank duly presented the bill to John on the due date who met the bill. the bank informed the same to jimmi. prepare John’s account in the books of jimmi and jimmi’s account in the books of John.
Answer:
Book of jimmi
Journal
| date | particulars | L.F | Dr Amount | Cr Amount |
| 2015 Feb 01 | John A/c ————–Dr To sales A/c (being: goods sold to John ) | 15,000 | 15,000 | |
| Feb 01 | bank A/c ————-Dr To John A/c (being: cheque received for Rs, 5,000 from John ) | 5,000 | 5,000 | |
| Feb 01 | bills Receivable A/c ————–Dr To John A/c (being: bill received from John for 40 days) | 10,000 | 10,000 | |
| mar 11 | bill sent for collection A/c ————-Dr To bill Receivable A/c (being: John’s acceptance sent to bank for collection ) | 10,000 | 10,000 | |
| mar 16 | bank A/c ——————-Dr To bill sent for collection A/c (being: John’s acceptance met on due date and bank received the payment ) | 10,000 | 10,000 |
Ledger
John’s Account
| Date | Particulars | L.F | Amount | Date | Particulars | J.F | Amount |
| 2015 Feb 01 | To sales A/c | 15,000 | 2015 Feb 01 | by bank A/c | 5,000 | ||
| Feb 01 | by bills Receivable A/c | 10,000 | |||||
| 15,000 | 15,000 |
Book of John
journal
| Date | Particulars | L.F | Dr Amount | Cr Amount |
| 2015 Feb 01 | purchases A/c —————–Dr To Jimmi A/c (being: goods purchases from jimmi) | 15,000 | 15,000 | |
| Feb 01 | Jimmi A/c ——————-Dr To bank A/c (Being: cheque paid to jimmi ) | 5,000 | 5,000 | |
| Feb 01 | Jimmi A/c ——————-Dr To bills payable A/c (being: bill draw accepted for 40 days ) | 10,000 | 10,000 | |
| Mar 16 | bills payable A/c ——————Dr To bank A/c (being: payment made on maturity of the bill to bank ) | 10,000 | 10,000 | |
Read also
- Theory base of Accounting class 11
- 1 Recording of transactions-1 class 11
- Recording of Transaction-2 class 11
Conclusion
In conclusion, Bills of Exchange serve as crucial financial instruments in commercial transactions, providing a structured mechanism for deferred payments, credit extension, and secure trade. While offering flexibility and negotiability, they also pose challenges related to complexity,