Chapter # 6

BILL OF EXCHANGE
Q.1:
Define bill of exchange?
Ans:
Bill of exchange is an unconditional order in writing drawn by one
person another, signed by he acceptor, requiring the acceptor to pay on
demand or at fixed or determinable future time, a certain sum of money
only to, or to the order of a specified person or to the bearer.
Q.2:
Name different parties of bill of exchange?
Ans:
i)
Drawer ii) Drawee
iii) Payee
Q.3:
Define Drawer?
Ans:
A person who draws the bill of exchange is called Drawer.
Q.4:
Define Drawee?
Ans:
The person to whom bill is drawn is called drawee.
Q.5:
Define Payee?
Ans:
A person who receive s the amount of bill on maturity date is called
payee.
Q.6:
What do you men by due date of bill?
Ans:
A determinable future time for payment of bill is called due date of
bill.
Q.7:
What is meant by grace days?
Ans:
An extra three days which are given in Bill of Exchange to acceptor
after agreed time for payment are called grace days.
Q.8:
What is bill receivable?
Ans:
A bill of exchange from the view of its drawer is called bill receivable.
Q.9:
What is Bill payable?
Ans:
A bill of exchange from the view of its acceptor is called bill payable.
Q.10:
Give any three characteristics of bill of exchange?
Ans:
i)
It must be in writing. ii) It must be signed by the maker.
iii) It must be unconditional order to pay.
Q.11:
Define promissory note?
Ans:
Promissory note is promise in writing containing an unconditional
undertaking, signed by the maker, to pay a certain person or to the
bearer of the instrument, a certain sum of money, after certain period of
time.

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Q.21:
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Name different parties of promissory note?

i)
Maker ii) Payee
Define Maker
A person who promises to play under promissory note is called maker.
Give any three characteristics / features of promissory note?
i)
It must be in writing. ii) It must be signed by the maker.
iii) It must be an unconditional promise to pay.
Differentiate between bill of exchange and promissory note?
Bill of Exchange
i)
It is an order to pay.
ii) There are parties
involved in it.
iii) Its acceptance is
necessary

Promissory Note
It is promise to pay.
There are to parties involved
in it.
There is no need to
acceptance.

Define the Discounting of bill?

When holder of the bill sells it to bank before due date to fulfill his
money need against discount is called discounting of bill.
Define endorsement of bill?
When a bill if transferred to third party or creditor to settle his debt is
called endorsement of bill.
Define Dishonouring of bill?
When the acceptor refuses to accept or make payment on the bill due to
any reason is called Dishonouring of bill.
What is meant by maturity of bill?
When payment is made by acceptor and received by payee on the due
date is called maturity of bill.
What is meant by renewal of bill?
When a drawee is not in position to meet the original bill at maturity he
may request to the drawer to draw a new bill for further period against
interest. This process of drawing a new bill is called Renewal of bill.
What is retiring of bill?
When drawee is agreed to make payment of bill before the due of date
for certain amount of rebate, is called retiring of bill.

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Q.32:
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Define insolvent?
When liabilities of any person exceeds from this assets, he is insolvent.
What is insolvency?
The situation in which liabilities of any person exceeds his assets is
called insolvency?
Define Nothing charges?
Charges which are paid to notary public on dishonour of bill of
exchange for nothing of bill are called nothing charges.
Define Notary public?
A person who notes the bill of exchange on its dishonour is called
Notary Public.
Define Noting?
A process of recording the dishonoured bill by the notary public is
called Noting.
Define Accommodation Bill?
When a bill of exchange is drawn, accepted without any consideration
for accommodation of himself, or acceptor or for mutual
accommodation is called Accommodation bill.
Write different types of accommodation?
i)
Accommodation of drawer ii) Accommodation of drawee
iii) Mutual accommodation
What is acceptance of bill?
A sign made by drawee on the face of bill along with the word
accepted is called acceptance.
What is holder of bill?
A person who I entitled in his own name to the possession of bill and to
claim the amount due on it, is called holder.
Name any four kinds of bill of exchange?
i)
Accommodation bill ii) Inland bill
iii) Clean bill
iv) Trade bill.
Define clean bill?
When no documents of title relating to the goods and other documents
are attached is called clean bill.

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What is qualified acceptance?

When a bill is accepted with some conditions by drawee is called
qualified acceptance.
What is general acceptance?
When a bill is accepted without any condition on the order of drawer, is
called general acceptance.
Give any four advantages of bill of exchange?
i)
Free transferability ii) Facility of discounting
iii) Proof of debt.
iv) Specific terms and conditions.
What do you know about rebate on bill of exchange?
Amount allowed to drawee for early payment of the amount of the bill
of exchange is called rebate.
Define mutual accommodation?
A situation in which bill of exchange is drawn for accommodation of
both drawer and drawee is called mutual accommodation.

Bill is retained Till the Date of Maturity

Endorsement of Bill:
The following journal entries shall be passed in the books of
drawer and the drawee:

(iv) Bill Sent for Collection:

Dishonour of a Bill:
It may happen that on the date of maturity of the bill:

(i) Bill was lying with the drawer,

(ii) Bill was discounted from the bank
(iii) Bill was endorsed to the creditor
(iv)Bill was sent for collection
(v) Bill was pledged for obtaining the loan from the bank.
In all these circumstances, the following journal entries shall be passed:

Renewal of the Bill:

The following journal entries will be passed in the books of
both the parties:

Retiring of Bill:
The following journal entries are passed in the books of both
the parties:

V. Insolvency of Acceptor:
The journal entries for this in the books of debtor and
creditor are as follows: