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Published on: 03/08/2019
Accounting for Bills of Exchange
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Questions + Answers key
Take MCQ Accountancy Test

1.
Who is a drawee of bill of exchange?
2.
Who is a drawer of bills of exchange?
3.
Name the parties to bills of exchange.
4.
What is Bill of Exchange?
5.
Define negotiable instruments.
6.
Define Bill of Exchange. Explain its advantages.
7.
A two months Bill for Rs 60,000 is drawn by B & Company and accepted by C & Co., payable at the Bank of India. B & Co. give the bill to their banker for collection. On due date, bill is honoured. Show the entries will be passed in the books of B & Co.
8.
The time of payment of a negotiable instrument need not be certain.
9.
A negotiable instrument is not freely transferable.
10.
The person to whom payment is to be made in a bill or exchange is called payee.
11.
A bill of exchange is drawn for all cash transaction.
12.
A bill of exchange must be accepted by the payee.
13.
Bill of exchange in India languages is called _________.
14.
There are _________ parties to a promissory note.
15.
A promissory note is drawn by __________ in favour of his ___________.
16.
In a promissory note, the person who makes the promise to pay is called as _________.
17.
The person to whom the amount mentioned in the promissory note is payable is known as _________.
18.
State any four essential features of Bills of Exchange.
19.
Write two points of distinction between Bills of Exchange and Promissory Note.
20.
Name any two types of commonly used negotiable instruments.
1.
( )
Drawee of the bill of exchange is a person upon whom the bill of exchange is drawn, and is the buyer or debtor.
2.
( )
Drawer of the bills of exchange is a person who draws the bills of exchange, and is typically the seller or creditor.
3.
( )
(i) Drawer,
(ii) Drawee,
(iii) Payee.
4.
( )
Bill of Exchange is an instrument in writing containing an unconditional order signed by the drawer directing a certain person or to bearer of the instrument to pay a certain sum of money only to or to the order of a certain person.
5.
( )
Negotiable instruments may be defined as the instruments whose holder can transfer the title of instruments.
6.
"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 sum of money only to, or to the order of, a certain person or to the bearer of the instrument." (Section 5 of the Negotiable Instruments Act, 1881).
Advantages of Bills of Exchange: The following advantages accrue from bills of exchange:
(i) Purchase and sale of goods on credit:
With the help of bills of exchange, goods can be sold and purchased on credit without difficulty since the bills of exchange contains an unconditional promise to pay.
(ii) Discounting facility:
The bills of exchange can be discounted at a bank, so that the firm allowing the credit can receive cash immediately without the debtor having to pay before time.
(iii) Easy to recover the amount:
If a bill of exchange is dishonoured, it would be easier to recover the amount legally than in the case of an ordinary debt.
(iv) Endorsement:
A bill of exchange can be endorsed to other parties; thus they serve almost the same purpose as cash.
(v) Certainty as to payment:
The date of payment is certain, so the firm which has to pay and that which has to receive the amount, can thus plan cash operations.
(vi) No reminder to debtor:
The recovery of the debt is possible without having to remind the debtor.
(vii) Convenient means of remittance in foreign trade:
In foreign trade, bills of exchange are of great assistance in enabling firms to make and receive payment. It, thus, avoids the risks of carrying the currency to different places of trade.
7.
| Date | Particulars | L.E. | Debit Amount (Rs) | Credit Amount (Rs) | |
|---|---|---|---|---|---|
| Bills Receivable A/c | Dr. | 60,000 | |||
| To C & Co's A/c | 60,000 | ||||
| (Being their acceptance received) | |||||
| Bills sent for Collection A/c | Dr. | 60,000 | |||
| To Bills Receivable A/c | 60,000 | ||||
| (Being the bill sent to bank for collection on due date) | |||||
| Bank A/c | Dr. | 60,000 | |||
| To Bill sent for Collection A/c | 60,000 | ||||
| (Being bill sent for collection and honoured) |
8.
(b)
9.
(b)
10.
(a)
11.
(b)
12.
(b)
13.
( )
Hundi
14.
( )
Two
15.
( )
Debtor, Creditor
16.
( )
Promisor
17.
( )
Promisee
18.
The following are the essential features of Bills of Exchange:
(i) A bill of exchange must be in writing.
(ii) It must be dated.
(iii) The order must be unconditional.
(iv) It must be for a specified amount and specified period.
19.
Difference between bills of exchange and Promissory note:
| Date | Bills of Exchange | Promissory Note |
|---|---|---|
| Drawer | It is drawn by creditor | It is drawn by debtor. |
| Order of promiss | It contains an order to make payment. | It contains a promise to make payment |
| Parties | There can be three parities: drawer, drawee, Payee | There are only two parties: Drawer, payee. |
| Acceotance | It requires acceptance by the drawee | It does not require any acceptance |
| Payee | Drawer and payee can be the same party | Drawer, cannot be the payee of it. |
20.
(i) Bills of exchange,
(ii) Promissory Note.
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