NCERT Solutions Class 11 Accountancy Chapter 8

NCERT Solutions for Class 11 Accountancy Chapter 8 Bill of Exchange

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Class 11 Accountancy NCERT Solutions Chapter 8 Bill of Exchange

NCERT Accountancy Class 11 Solutions

In Class 11 Accountancy Chapter 8, students will learn what a Bill of Exchange is and how it’s handled. A bill of exchange is a written order binding one party to pay another party a certain sum of money on demand or at a specific date. It’s primarily employed in international commerce.

The NCERT Solutions for Class 11 Accountancy Chapter 8 help students solve the textbook questions accurately. Also, students get an idea of how to attempt questions in the right manner in exams and score higher marks.

What is a Bill of Exchange?

In accounting, a bill of exchange is a negotiable instrument. It is a legally enforceable agreement between two parties to pay a specific amount of money on demand. They’re primarily employed in international trade. According to the Negotiable Instruments Act of 1881, a Bill of Exchange is a written instrument raised by the creator in unconditional order to pay a predetermined amount on demand to a particular person or the holder of the instrument.

In this transaction, three units are involved:  Drawer, Payee, and Drawee.

Drawer – The party who issues the bill of exchange which  needs the drawee to pay the amount to a third party.

Drawee – The Party upon whom the bill of exchange is drawn and who is required to pay the amount to the payee.

Payee – The party who receives the amount that is specified by the drawer.

The title, the amount to be paid, the date on which the amount has to be paid, payee name and status, identification number, and signature of the drawee are all included in the Bill of Exchange.

Characteristics of a bill of exchange

A bill of exchange has the following four characteristics:

  • A written bill of exchange is required.
  • A bill of exchange must include a total payment order.
  • The bill’s drawer and the drawee must sign the bill.
  • The bill of exchange should precisely include the amount and the expiration date.

Types of Bill of Exchange

Documentary Bill: As the name implies, the documentary bill is proof of the transaction between the seller and the buyer with essential documentation. Demand Bill: A demand bill is paid when it is requested. It does not have a set expiration date. Thus, it can be cleared anytime it is needed.

Clean Bill: It has no documentary evidence that the transaction happened. So, it has a higher interest rate than other bills.

Foreign Bill: As the name suggests , a foreign bill is paid outside a country. Import and export bills are examples of foreign bills.

Trade bill: It is a bill that is solely concerned with trade.

Supply Bill: A supply bill is a bill that is withdrawn from a government department by either a supplier or a contractor.

Solved Examples

Shankar bought goods for Parvati for Rs. 8,000 on January 1, 2016. After that, he drew a promissory note in favour of Parvati payable after a period of 3 months. The Government of India declared a holiday under the Negotiable Instrument Government Act of 1881, on the date of maturity of the promissory note. Parvati was not aware of the provision of law related to the date of maturity of the bill, and handed over the bill to the lawyer who presented it and received the payment. Record the necessary entities in the books of Parvati.

Books of Parvati

                                                                              Journal
Date Particular Debit Credit
1 Jan, 2016 Shankar Dr 8000 
To Sales A/c (sold goods to Shankar) 8000
1 Jan, 2016 Bill receivable A/c Dr 8000
To Shankar (Shankar sent Promissory Note for  three months) 8000
5 Apr, 2016 Cash A/c Dr 8000
To Bills Receivable A/c (Cash received for Promissory Note one day after the

Maturity date on account of holiday declared by Govt.)

 8000

Fun Fact

The words debit and credit come from the Latin words debitum and creditum. 

 

FAQs (Frequently Asked Questions)

Bills of exchange are written instruments that carry an unconditional order to pay a specific amount of money from the maker to the bearer. A promissory note is a written document signed by the creator as an unconditional promise to pay a specific amount to the bearer of the instrument. Three parties are engaged in a bill of exchange: the drawer, the drawee, and the payee. However, only two parties are involved in a promissory note: the maker and the payee.  

An important feature of a bill of exchange is that it reduces the risk of exporting. There are different laws and conventions regarding transportation and methods between states and countries. Trading outside of the country has a higher level of risk than trading within the country. As a result, the bill of exchange reduces the risk of dealing outside the country. The currency rate varies, and bills of exchange safeguard exporters by guaranteeing a fixed amount of payment. Bills of trade are essentially legal documents. For example, if the drawee fails to pay, the drawer can use the bill of exchange as evidence to collect the money legally.

In Chapter 8 of Class 11 Accountancy, the dishonour of the bill happens when payment is not made on the due date. The entries are reversed in such circumstances. The acceptor’s liabilities will be reinstated. To avoid the bill being dishonoured, the required amount must be paid on the specified day.

 

An endorsement of a bill means that it cannot be transferred or endorsed to anybody unless there are certain limits for the transfer. The bill can be endorsed by affixing the drawer’s signature to the reverse of the bill besides the name of the party to whom it must be transferred. Bill endorsement refers to the process of transmitting and endorsing the legislation.

The following are some of the benefits of a bill of exchange:

  • It allows the seller and the buyer to do a credit transaction. 
  • Both the creditor and the debtor know when the creditor will receive the money and when the debtor must pay. 
  • This allows the buyer to purchase the items and pay the bill once a set period has passed. However, the creditor can collect payment immediately by discounting the bill with the bank or endorsing the bill to a third party.

 

The two parties in the promissory notes are the Drawer and the Drawee. The drawer signs the promissory note and agrees to pay the sum that is agreed upon. The drawee is the individual in whose favour the promissory note is drawn. He’s also known as a promisee.

The technique for calculating the maturity date of a bill of exchange is described in the steps below:

  • Determine the bill’s due date according to the provisions of the bill of exchange.
  • A three-day grace period must be added to the due date to get to the maturity date.