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Bills of Exchange And Promissory Notes

Retirement of Bills of Exchange

A bill of exchange is usually honored only on the maturity date. But, in some cases, it can be honored before time. This is known as the Retirement of bills of exchange. Also, a bill may be cancelled before time and a new bill may be written in its place. This is known as Renewal of bills of exchange.

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Retirement of Bills of Exchange

It may happen sometimes that the drawee has surplus funds. So he may decide to pay the amount of the bill before the date of maturity. Thus, he asks the drawer or the holder whether he is ready to accept the payment before the due date of the bill. The drawer or the holder may agree to pre-payment. This is called the retirement of bills of exchange.


In order to encourage the drawee to pay the bill before the maturity date, the drawer gives him a discount. This discount is known as a rebate on bills. Thus, we calculate the rebate on bills at a certain rate of interest for the time between the date of payment and the date of maturity.

The rebate on bills is an expense of the drawer or the holder of the bill. While it is an income of the drawee or the payer. All journal entries are similar as in case of honor of the bill on the maturity date except for the rebate.

Retirement of Bills of exchange

(Source: Alamy)

Journal Entry of Retirement of Bills of Exchange

In the books of Drawer or Holder

Date Particulars Amount (Dr.) Amount (Cr.)
1. The retirement of the bill Bank/Cash A/c Dr.  xxxx
Rebate on bills A/c Dr.  xxxx
To Bills receivable A/c  xxxx
(Being bill retired and rebate allowed)

In the books of Drawee or Payer

Date Particulars Amount (Dr.) Amount (Cr.)
1. The retirement of the bill Bills payable A/c Dr.  xxxx
To Rebate on bills A/c  xxxx
To Cash/ Bank A/c  xxxx
(Being bill retired and rebate received)

Solved Example For You

Q. On 15th June 2018, A sold goods to B for ₹ 20000. B paid ₹ 10000 in cash and accepted a bill for the remaining amount for three months. On 18th August 2018, B retired the bill under a rebate of 6%p.a. Pass the necessary Journal entries in the books of A and B. Also prepare the necessary ledger accounts.

Ans: Journal Entries in the books of A

Date  Particulars   Amount (Dr.) Amount (Cr.)
15 June B’s A/c Dr. 10000
Cash A/c Dr. 10000
To Sales A/c 20000
(Being goods sold to B and half amount received in cash)
15 June Bills Receivable A/c Dr. 10000
To B’s A/c 10000
(Being bill drawn on B and accepted by him)
18 Aug Cash A/c Dr. 9950
Rebate on bills A/c Dr. 50
To Bills receivable A/c 10000
(Being bill receivable retired before maturity date and rebate of 6% p. a. allowed)

B’s A/c

Date Particulars Amount   Date Particulars Amount
15 June To Sales A/c 10000 15 June By Bills receivable A/c 10000

 Cash A/c

Date Particulars Amount   Date Particulars Amount
15 June To Sales A/c 10000
18 Aug To Bills receivable A/c 9950

 Sales A/c

Date Particulars Amount   Date Particulars Amount
15 June By B’s A/c 10000
By Cash A/c 10000

 Bills Receivable A/c

Date Particulars Amount   Date Particulars Amount
15 June To B’s A/c 10000 18 Aug By Cash A/c 9950
18 Aug By Rebate on bills A/c 50

Rebate on bills A/c

Date Particulars Amount   Date Particulars Amount
18 Aug To Bills receivable A/c 50

Journal Entries in the books of B

Date Particulars   Amount (Dr.) Amount (Cr.)
15 June Purchases A/c Dr. 20000
To Cash A/c 10000
To A’s A/c 10000
(Being goods purchased from B and half amount paid in cash)
15 June A’s A/c Dr. 10000
To Bills Payable A/c 10000
(Being bill drawn by A and accepted by us)
18 Aug Bills Payable A/c Dr. 10000
To Rebate on bills A/c 50
To Cash A/c 9950
(Being bill payable retired before maturity date and rebate of 6% p. a. received)

Purchases A/c

Date Particulars Amount   Date Particulars Amount
15 June To Cash A/c 10000
To A’s A/c 10000

 Cash A/c

Date Particulars Amount   Date Particulars Amount
15 June By Purchases A/c 10000
18 Aug By Bills payable A/c 9950

 A’s A/c

Date Particulars Amount   Date Particulars Amount
15 June To Bills payable A/c 10000 15 June By Purchases A/c 10000

 Bills Payable A/c

Date Particulars Amount   Date Particulars Amount
18 Aug To Cash A/c 9950 15 June By A’s A/c 10000
18 Aug To Rebate on bill A/c 50

 Rebate on bills A/c

Date Particulars Amount   Date Particulars Amount
18 Aug By Bills payable A/c 50

 

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