Endorsement of Bill of Exchange

Learning Objectives:

1. What are the journal entries in the books of drawer, acceptor and endorsee when a bill of exchange is endorsed by the drawer?

When a bill of exchange is negotiated i.e., transferred from one person to another person so as to constitute the transferee the holder of a bill, each person through whose hands it passes, must write his name on the back of the bill. This is know as the "endorsement of a bill of exchange". Some times the drawer of the bill does not keep the bill with him until the date of the maturity. He endorses it to some other party in payment of the debt due from him. When the bill is endorsed to any other party the journal entries will be:

Drawer's Books

When a bill of exchange is endorsed:

Endorsee's personal account [Dr.]

To Bills receivable account [Cr.]

Acceptor's Books:

His books remain unaffected. He will pay it on the due date to the holder and usual entry for the payment will be passed:

Endorsee's Books:

When he will receive an endorsed bill, he will treat it just like an ordinary bill:

Bill receivable account [Dr.]

To Transfer's personal account [Cr.]

Example:

A bill for $2,000 is drawn by P on Q and accepted by the later. P transfers it to his creditor R. On the due date the acceptance is duly met.
Record the above transactions in the books of P, Q and R.

Journal Entries in the Books of P

Bills receivable account		2,000
To Q			2,000
(Acceptance received)
R		2,000
To Bank for collection account			2,000
(Bill endorsed)

Journal Entries in the Books of Q

P		2,000
To Bills payable account			2,000
(Acceptance given)
Bills payable account		2,000
To Cash account			2,000
(Bill paid)

Journal Entries in the Books of R

Bill receivable account		2,000
To P			2,000
(Bill received from from a debtor - Q)
Cash account		2,000
To Bill receivable account			2,000
(amount of the bill received)