Bills of Exchange and Promissory Notes for CA Foundation
Recording bills of exchange and promissory notes: due dates, entries in the books of the drawer and acceptor, discounting, endorsement, dishonour, retirement, renewal and accommodation bills.
AccountingPaper 112 MCQs2 lessons2 flashcards3 memory tricks
Practise Bills of Exchange and Promissory Notes free
What you'll learn
- Due dates and basic entries
Calculate due dates and record bills in the drawer's and acceptor's books. - Dishonour, retirement and renewal
Record dishonour, noting charges, retirement and renewal.
Key formulas
| Due date | Date of drawing (or acceptance, for 'after sight') + term + 3 days of grace |
|---|---|
| Due date on a public holiday | Preceding business day |
| Due date on an emergency holiday | Next business day |
| Discount | Amount × rate × unexpired period |
Concepts explained
Due date, days of grace and discount
A time bill matures on the date of drawing plus its term plus three days of grace; a discount is simple interest for the unexpired period.
What it means
- Due date = date of drawing (or acceptance for 'after sight') + term + 3 days.
- Public holiday: preceding business day; emergency holiday: next business day.
- Months are calendar months; if the month has no such date, use its last day.
- Discount = face value × rate × unexpired time.
- Drawn 1 Jan, 2 months
Answer: 4 March
- ₹10,000 at 12% for 3 months
Answer: ₹300
Related terms
- After sight: term counted from the date of acceptance
- At sight: payable on demand: no grace
Exam tip: A bill drawn on 31 January for one month falls due on 28 (or 29) February + 3 days.
Recording bills in the drawer's and acceptor's books
For the drawer a bill is Bills Receivable (an asset); for the acceptor it's Bills Payable (a liability). The drawer may hold, discount or endorse it.
What it means
- Acceptance: drawer B/R Dr, To Drawee; acceptor Drawer Dr, To B/P.
- Discounting: Bank Dr, Discount Dr; To B/R.
- Endorsement: Creditor Dr; To B/R.
- The acceptor's entries are the same whatever the drawer does with the bill.
- Drawer endorses a B/R to a creditor
Answer: Creditor A/c Dr; To B/R A/c
- Acceptor's books
Answer: Drawer A/c Dr; To B/P A/c
Related terms
- Trade bill: arises from a sale on credit
- Promissory note: promise by the debtor, so the debtor writes it
Exam tip: Draw a T-account for the drawee: the bill reduces what he owes; dishonour brings it back.
Dishonour, noting, retirement, renewal and accommodation
On dishonour the drawee becomes liable again (plus noting charges). Bills may also be retired early, renewed later, or drawn as accommodation without trade.
What it means
- Dishonour: debit drawee; credit B/R, Bank or Endorsee (whoever held the bill).
- Noting charges are finally borne by the drawee.
- Retirement: early payment with a rebate.
- Renewal: old bill cancelled, new bill drawn, usually with interest; accommodation bills: no consideration.
- Bank debits drawer ₹15,100 incl. noting
Answer: Drawee Dr 15,100; To Bank 15,100
- ₹10,000 bill renewed for 2 months at 12%
Answer: Interest ₹200 added to the new bill
Related terms
- Notary public: records dishonour (noting and protest)
- Insolvency of acceptor: unrecovered amount written off as bad debt
Exam tip: Ask who held the bill at maturity; that's the account to credit on dishonour.
Memory tricks
Due date = drawing date + term + 3 days of grace.
Drawee Dr; To B/R / Bank / Endorsee, depending on who held the bill.
Retirement: early payment with rebate; renewal: new bill with interest.
Try 3 CA Foundation-style questions
Q1. A bill that the drawer had discounted with the bank is dishonoured on maturity. In the drawer's books the entry is
- Bank A/c Dr; To Drawee's A/c
- Drawee's A/c Dr; To Bank A/c
- Bills Receivable A/c Dr; To Bank A/c
- Drawee's A/c Dr; To Bills Receivable A/c
Show answer
Answer: (2) Drawee's A/c Dr; To Bank A/c
The bank recovers the amount from the drawer, and the drawer revives the claim against the drawee: debit drawee, credit bank.
Q2. A bill of exchange drawn on 1 January 2026 is payable two months after date. Its due date is
- 1 March 2026
- 3 March 2026
- 4 February 2026
- 4 March 2026
Show answer
Answer: (4) 4 March 2026
Add the term (2 months: 1 March) and then 3 days of grace: 4 March 2026.
Q3. Discounting a bill of exchange means
- cancelling the bill
- paying the bill before the due date
- transferring it to a creditor
- getting it encashed from a bank before the due date for less than its face value
Show answer
Answer: (4) getting it encashed from a bank before the due date for less than its face value
The holder receives cash now; the bank deducts a discount (interest) for the remaining period.
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