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Sometimes, the drawee may find himself unable in making the payment of the bill on the due date. In such case, he may request the drawer to draw a new or fresh bill on him in place of the original bill. The drawer may agree to the proposal, if the drawee is prepared to pay interest on the- additional or extended period. As a trade practice, it is supposed that the interest will be definitely charged on the extended period.


Renewal presupposes the dishonour of the bill, so in case of renewing the bill or drawing a fresh bill the original bill must be dishonoured whether dishonour is specified or not. After the dishonour of the bill, the problem of interest is taken. The amount of interest may be agreed between the drawer and drawee. If the amount is not agreed we will have to calculate interest at the specified rate on the original amount of the bill or on the amount due (in case of part payment). Interest is calculated on the extended period. Let us take an example. A sold goods to B for $ 2,000 on cred it on Jan. 1st, 2005. B accepted a draft for the amount payable after 3 months. On the due date, B fails to make the payment. B requested A to renew the bill. A agreed to draw a fresh bill payable after two months for the original amount of the bill plus interest @ 12%. In this case interest will be calculated for the extended period, i.e., two months. Interest will not be charged for the period of the original bill because it was on credit sale and the payment was agreed to be made after three months. B has been extending period beyond April 4, 2005, the due date of the original bill by two months. As such it is justified, that A should charge interest for the extended period. Interest will be calculated as under :


Interest = (12 * 2, 000 * 2) / (100 ) 12

= 40.


Interest will be received by A, the drawer, so he will credit interest account. Bwill debit interest account, because it is an expense for him. The amount of interest may be paid in cash or remain due. If it has been received in cash, it will not be included in the amount of the fresh bill. If it has not been received, it will be added to the value of the original bill.


Accounting Treatment of Renewal of the Bill


In the books of drawer. The first entry to be passed in the process of renewal will be regarding dishonour of the bill. While passing entry for dishonour of the bill it will have to be ascertained, whether the bill has been retained by the drawer or discounted or endorsed and the entry will be passed accordingly. Journal entries regarding dishonour have been discussed earlier.


The drawer will charge certain interest for the period of the new bill. Interest is gain for the drawer, so it will be credited. Cash account will be debited, if the interest has been received in cash and drawee’s account will be debited if the interest remains due. Last entry in the process of renewal is regarding the fresh bill. It should be noted that the amount of the fresh bill will include the amount of the original bill and the amount of interest, if it is due. If the interest has already been received in cash, the amount of the fresh bill will not include interest.


In the books of drawee. The drawee will pass entry for dishonour as usual. He will debit interest account as it is an expense for him and drawer’s account will be credited. If the interest is paid in cash, interest account will be debited and cash account will be credited. While passing entry for accepting a fresh bill the amount of interest will be added to the value of bill, if the interest is due. Interest will not be added if it is paid in cash. The following Journal entries will be passed.


Journal Entries


Transactions                            In the Books of Drawer                      In the Books of Drawee

(Suppose A)                                         (Suppose B)

l. If B accepts a bill                  B/R A/c            Dr.       1,200                           A         Dr.      1,200

for $ 1200                                To B                1,200                          To B/P A/c       1,200

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

received)                                             given)


It was agreed to renew            B          Dr.      1200                            B/PA/c   Dr.                 1,200

the bill renewal process :        To B/R A/c      1200                            To A                           1,200

(i) Dishonour of the bill           (Being the bill dishonoured)              (Being the bill dishonoured)


(ii) Interest due $ 20                B          Dr.       20                                Interest A/c Dr.          20

To Interest A/c 20                               To  A 20

(Being interest due)                                        (Being interest due)


(iii) B accepted afresh bill       B/R A/c Dr.      1,220                          A Dr.                           1,220

To B                1,220                           To B/P A/c                  1,220

(Being acceptance of fresh bill               (Being acceptance of fresh bill

received)                                             given)


The (ii) and (iii)                       B/R A/c Dr. 1,220                                A Dr.                           1,220

entries may also be                  To B 1,200                                          Interest A/c Dr.           20

combined as                            To Interest A/c 20                               To B/P A/c                   1,220

(Being acceptance of fresh bill           (Being fresh bill together with

together with interest received)                      interest accepted)


Illustration 12. A sells goods to B to the value of $1,450 and draws on him a four months bill of exchange for the amount, which B accepts. A discounts the same with the Bank and pays $ 7.25 as discounting charges. On the due date B dishonours the bill and requests A to renew the bill for four months for the amount of old bill together with discounting charges plus interests at 5% per annum. A does so. This new bill was duly met on maturity. Pass journal entries in the books of both the parties.


Solution.                                                         Journal Entries

in the Books of A


Date                                        Particulars                              L.F

Debit                           Credit

$                                  $

B                                              Dr.                   1,450.00

To Sales A/c                                                                            1,450.00

(Being sale of goods to B)


Bills Receivable A/c                            Dr.                  1,450.00

To B                                                                                                    1,450.00

(Being acceptance of the bill received)

Cash/Bank A/c

Discount A/c

To Bills Receivable A/c

(Being the bill discounted with Bank)



To Bank A/c

(Being B’s acceptance dishonoured)



To Interest A/c

(Being Interest due)


Bills Receivable A/c

To B

To Discount A/c

(Being new bill accepted by B, including Interest and discount)


Cash A/c

To Bills Receivable A/c

(Being payment of bill received on due date)

Dr.                  1,442.75

Dr.                   7.25





Dr.                  1,450.00




Dr.                 24.17




Dr.               1,481.42






Dr.                 1.481.42








1 ,450.C














1,48 1.4 2

Journal Entries

In the Books of B

 Purchases A/c

To A

(Being purchases of the goods from A)



To Bills Payable A/c

(Being acceptance of the bill given)


Bills Payable A/c

To A

(Being acceptance dishonoured on due date)


Interest A/c

To A

(Being Interest made due)



Discount A/c

To Bills Payable

(Being acceptance given)


Bills Payable A/c

To Cash A/c

(Being acceptance met on due date)

Dr.        1.450.00




Dr.        1,450.00




Dr.        1,450.00




Dr.            24.17




Dr.            1,474.17

Dr.                   7.25




Dr.           1.481.42


Note. As per agreement between A and B, new bill will include the amount of the original bill plus interest plus discount. As drawer will not bear the loss of discount, so the discount account has been written off by crediting it.