Renewal of Bill

Sometimes, it may so happen that the drawee realizes that he will be unable to pay the amount of bill to the drawer on the maturity date. In this case, he may request the drawer to cancel the old bill. When the drawer agrees to it, he cancels the old bill and draws a new bill along with the amount of interest on the drawee. This process is known as Renewal of Bill.

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Renewal of Bill

The drawee may pay some amount of the old bill in cash and accept the new or fresh bill for the balance amount.

Also, he has an option to either pay the amount of interest on the new bill in cash or include the amount of interest in the bill.

Thus, the amount of new bill = Amount of old bill – cash paid + interest amount.

Browse more Topics under Bills Of Exchange

• Meaning and Features of Bills of Exchange
• Dishonor and Discharge of Bills
• Types of Bills of Exchange
• Discounting of Bills

Learn more about Dishonor of Bill here in detail.

Journal Entries

In the books of Drawer

Date	Particulars		Amount (Dr)	Amount (Cr)
1. Dishonor of bill	As the case may be
2. For interest on renewed period	Drawee’s A/c	Dr.
	To Interest A/c
	(Being interest due on the bill)
3. When interest received in cash	Cash A/c	Dr.
	To Interest A/c
	(Being receipt of interest in cash
4. For a fresh bill	Bills Receivable A/c	Dr.
	To Drawee’s A/c
	(Being fresh bill drawn)

 

In the books of Drawee

Date	Particulars		Amount (Dr)	Amount (Cr)
1. Dishonor of bill	Bills Payable A/c	Dr.
	To Drawer’s A/c
	(Being dishonor of bill)
2. For interest on renewed period	Interest A/c	Dr.
	To Drawer’s A/c
	(Being interest due on the bill)
3. When interest paid in cash	Interest A/c	Dr.
	To Drawer’s A/c
	(Being payment of interest in cash
4. For a fresh bill	Drawer’s A/c	Dr.
	To Bills Payable A/c
	(Being fresh bill drawn)

Source: freepik.com

Solved Example for You

Kara sells goods to Mira on 1^st September 2018 for ₹15000. Mira accepts a bill for 3 months. On the due date, Mira requests Kara to renew the bill for a period of 2 months. Kara agrees to it if Mira pays interest at 10% immediately in cash. Mira agrees and accepts a fresh bill in favor of Kara. She duly meets the second bill on the due date. Show necessary journal entries in the books of Kara and Mira.

Ans.

Journal Entries

In the books of Kara

Date	Particulars		Amount (Dr)	Amount (Cr)
1 Jul	Mira’s A/c	Dr.	15000
	To Sales A/c			15000
	(Being sales to Mira)
1 Jul	Bills Receivable A/c	Dr.	15000
	To Mira’s A/c			15000
	(Being bill drawn on Mira for 3 months accepted by her)
4 Oct	Mira’s A/c	Dr.	15000
	To Bills Receivable A/c			15000
	(Being cancellation of the bill due to renewal)
4 Oct	Cash A/c	Dr.	250
	To Interest A/c			250
	(Being receipt of interest in cash @ 10% p.a.)
4 Oct	Bills Receivable A/c	Dr.	15000
	To Mira’s A/c			15000
	(Being fresh bill drawn)
8 Dec	Cash A/c	Dr.	15000
	To Bills Receivable A/c			15000
	(Being receipt of money due from B/R)

In the books of Mira

Date	Particulars		Amount (Dr)	Amount (Cr)
1 Jul	Purchases A/c	Dr.	15000
	To Kara’s A/c			15000
	(Being purchases from Kara)
1 Jul	Kara’s A/c	Dr.	15000
	To Bills Payable A/c			15000
	(Being bill drawn by Kara for 3 months accepted)
	(Being interest due on the bill)
4 Oct	Bills Payable A/c	Dr.	15000
	To Kara’s A/c			15000
	(Being cancellation of the bill due to renewal)
4 Oct	Interest A/c	Dr.	250
	To Cash A/c			250
	(Being payment of interest in cash @ 10% p.a.)
4 Oct	Kara’s A/c	Dr.	15000
	To Bills Payable A/c			15000
	(Being fresh bill accepted)
8 Dec	Bills Payable A/c	Dr.	15000
	To Cash A/c			15000
	(Being payment of money due in respect of B/P)