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If the bill is retained by the drawer till the date of maturity


The bill is drawn for a certain specific period. At the end of period, the drawer will receive the payment of the bill on its due date. These transactions will be recorded in the books of both the drawer and drawee.


Journal Entries

Transactions                            Books of Drawer                                             Books of Drawee

(Suppose A)                                                     (Suppose B)

l. Goods are sold by                B                                 Dr.

   A to B.                                  Dr. Purchases A/c                                            To Sales A/c To A

(Being goods sold to B on credit) (Being goods purchased from A)


2. Bill is accepted by               B/R  A/c                       Dr.                            A                            Dr.

   B (drawn by A).                        To B                                                           To Bills Payable A/c

(Being the acceptance of the              (Being acceptance of the bill

bill received)                                                   given to A)


3. The bill is honoured            Cash A/c Dr. B/P A/c Dr.

or paid on the due date.          To B/R A/c To Cash A/c

(Being the payment of the bill            (Being the payment of the

received)                                                         bill made)


Explanation of the Journal Entries


Bills of exchange on the basis of its payment is classified as Bills Receivable and Bills Payable.

Bills Receivable. It is the bill, whose payment has to be received. Payment is generally received by the drawer, so the bill is always a bill receivable for him. It should be noted for accounting purposes that the drawer always debits or credits Bills Receivable account in his books. It means that he never uses Bills Payable account in his books of accounts. The endorsee will also receive the payment of the bill so he will also use the term ‘Bills Receivable’ in his books of accounts.


Bills Payable. It means the bill whose payment has to be made. The payment of the bill will be always made by the drawee, so he will always use the term ‘Bills Payable’ in his books of accounts. He may credit or debit Bills Payable account (as the case may be) but he will never use the term Bills Receivable.




Acceptance of the bill. It has been explained earlier that the drawer writes the bill in the form of draft in the initial stage. The draft becomes the bill of exchange after its acceptance. It can, thus, be said that the bill has come into existence at drawee’s place. (It was a draft, so far before the acceptance). Bill of exchange is a legal document, so entries will be made on its every movement. The Bill will at first go to the drawer for retention. The drawer will receive the bill, so he will debit Bills Receivable account, because B/R Account is real account for which the rule goes “Debit what comes in”. According to modern approach, Bills Receivable account is an asset which is increasing, so it will be debited. The drawer will credit drawee’s account because he is giver (the rule goes credit the giver). According to modern approach, debtors account as an asset will be credited, because it is decreasing. Debtors will decrease, when they accept the bill. (Decrease in the assets are credited).


The drawee will debit drawer’s account because the bill is being received by the drawer (debit the receiver). He will credit Bills Payable account because Bills Payable is going (credit what goes out).


Payment of the bill. On the due date of the bill the drawer will send the bill to the drawee, so B/R account will be credited because it goes outside (credit what goes out). Cash account will be debited because cash is coming (debit what comes in).


The drawee will debit bills payable account because it is coming to him (debit what comes in). He will credit cash account because cash is going outside the business (credit what goes out).


Illustration 2. A shish sells goods to Sandeep for $ 13,500 on 1st February, 2004. On the same date, Ashish draws a bill of exchange on Sandeep for $ 13,500 for two months. Sandeep accepts it and returns it to As his h. Sandeep meets the bill on due date. Pass journal entries in the book of both the parties.


Solution.                                                         Journal Entries

In the Books of Ashish (Drawer)

Date                                                    Particulars                  L.F                  Amount

Debit               Credit

$                                  $


Feb. 1              Sandeep’s A/c                                     Dr.                  13 ,500

To Sales A/c                                                                            13.500

(For goods sold on credit)


Feb. 1              Bills Receivable A/c                           Dr.                  13,500

To Sandeep’s A/c                                                                                 13.500

(For acceptance of the bill received)


April4              Cash A/c                                            Dr.                  13.500

To Bills Receivable A/c                                                                       13.500

(For the payments of the bill received)


In the Books ofSandeep (Drawee)


Feb.1               Purchases A/c                                     Dr.                  13,500

To Ashish A/c                                                                                     13,500

(For goods purchased on credit)


Feb. 1              Ashish’s A/c                                         Dr.                  13,500

To Bills Payable A/c                                                                            13,500

(For acceptance of the bill given)


April4              Bills Payable A/c                                Dr.                  13,500

To Cash A/c                                                                                         13.500

(For the amount of the acceptance paid)