Accounting For Bills of Exchange

Learning Objectives:

1. Define and explain bills of exchange.
2. What are its advantages?
3. How does a bill differ from a promissory note?
4. How a bill of exchange functions?
5. What are the accounting treatments of drawing, accepting, discounting, and paying a bill.

Our present day business transactions are mostly conducted on credit basis. It means that the buyer of goods pays the price of goods purchased within a fixed time after the date of the transaction.

On the other hand the seller has to wait for his money. In many cases the seller cannot afford to do so. He desires payment at the time of selling the goods; but the buyer is not in a position to pay. Then how the matter can be settled so that both the buyer and seller are satisfied? The bill of exchange is one of the means of doing this.