NCERT Class 11 Accountancy - Bill of Exchange

Scroll down for PDF

NCERT Class 11 Accountancy - Bill of Exchange.Download NCERT Chapters and Books in pdf format. Easy to print and read. Copies of these textbooks may be downloaded and used as textbooks or for reference. Refer to other chapters and books at other links (NCERT now providing you soft copies of all textbooks of all subjects from class first to twelfth online). 

Bill of Exchange

Goods can be sold or bought for cash or on credit. When goods are sold or bought for cash, payment is received immediately. On the other hand, when goods are sold/bought on credit the payment is deferred to a future date. In such a  situation, normally the firm relies on the party to make payment on the due date. But in some cases, to avoid any possibility of delay or default, an instrument of credit is used through which the buyer assures the seller that the payment shall be made according to the agreed conditions. In India, instruments of credit have been in use since time immemorial and are popularly known as Hundies. The hundies are written in Indian languages and have a large variety (refer box1).

8.1 Meaning of Bill of Exchange

According to the Negotiable Instruments Act 1881, a bill of exchange is defined as an instrument in writing containing an unconditional order, signed by the maker, directing a certain person to pay a certain sum of money only to, or to the order of a certain person or to the bearer of the instrument. The following features of a bill of exchange emerge out of this definition.

• A bill of exchange must be in writing.

• It is an order to make payment.

• The order to make payment is unconditional.

• The maker of the bill of exchange must sign it.

• The payment to be made must be certain.

• The date on which payment is made must also be certain.

• The bill of exchange must be payable to a certain person.

• The amount mentioned in the bill of exchange is payable either on demand or on the expiry of a fixed period of time.

• It must be stamped as per the requirement of law. A bill of exchange is generally drawn by the creditor upon his debtor. It has to be accepted by the drawee (debtor) or someone on his behalf. It is just a draft till its acceptance is made.

For example, Amit sold goods to Rohit on credit for Rs. 10,000 for three months. To ensure payment on due date Amit draws a bill of exchange upon Rohit for Rs. 10,000 payable after three months. Before it is accepted by Rohit it will be called a draft. It will become a bill of exchange only when Rohit writes the word “accepted” on it and append his signature thereto communicate his acceptance.

8.1.1 Parties to a Bill of Exchange

There are three parties to a bill of exchange:

(1) Drawer is the maker of the bill of exchange. A seller/creditor who is entitled to receive money from the debtor can draw a bill of exchange upon the buyer/debtor. The drawer after writing the bill of exchange has to sign it as maker of the bill of exchange.

(2) Drawee is the person upon whom the bill of exchange is drawn. Drawee is the purchaser or debtor of the goods upon whom the bill of exchange is drawn.

(3) Payee is the person to whom the payment is to be made. The drawer of the bill himself will be the payee if he keeps the bill with him till the date of its payment. The payee may change in the following situations:

(a) In case the drawer has got the bill discounted, the person who has discounted the bill will become the payee;

(b) In case the bill is endorsed in favour of a creditor of the drawer, the

creditor will become the payee. Normally, the drawer and the payee is the same person. Similarly, the drawee and the acceptor is normally the person. For example, Mamta sold goods worth Rs.10,000 to Jyoti and drew a bill of exchange upon her for the same amount payable after three months. Here, Mamta is the drawer of the bill and Jyoti is the drawee. If the bill is retained by Mamta for three months and the amount of Rs. 10,000 is received by her on the due date then Mamta will be the payee. If Mamta gives away this bill to her creditor Ruchi, then Ruchi will be the payee. If Mamta gets this bill discounted from the bank then the bankers will become the payee.

Questions for Practice

Short Answers

1. Name any two types of commonly used negotiable instruments.

2. Write two points of distinction between bills of exchange and promissory note.

3. State any four essential features of bill of exchange.

4. State the three parties involved in a bill of exchange.

5. What is meant by maturity of a bill of exchange?

6. What is meant by dishonour of a bill of exchange?

7. Name the parties to a promissory note

8. What is meant by acceptance of a bill of exchange?

9. What is Noting of a bill of exchange.

10. What is meant by renewal of a bill of exchange?

11. Give the performa of a Bills Receivable Book.

12. Give the performa of a Bills Payable Book.

13. What is retirement of a bill of exchange?

14. What is meant by insolvency?

15. Give the meaning of rebate.

16. Give the performa of a Bill of Exchange.

Long Answers

1. A bill of exchange must contain “an unconditional promise to pay” Do you agree with a statement?

2. Briefly explain the effects of dishonour and noting of a bill of exchange.

3. Explain briefly the procedure of calculating the date of maturity of a bill of exchange? Give example.

4. Distinguish between bill of exchange and promissory note.

5. Briefly explain the purpose and benefits of retiring a bill of exchange to the debtor and the creditor.

6. Explain briefly the purpose and advantages of maintaining of a Bills Receivable Book.

7. Briefly explain the benefits of maintaining a Bills Payable Book and state how is its posting is done in the ledger?

Please refer to attached file for NCERT Class 11 Accountancy - Bill of Exchange


Click on the text For more study material for Accountancy please click here - Accountancy

Latest NCERT & CBSE News

Read the latest news and announcements from NCERT and CBSE below. Important updates relating to your studies which will help you to keep yourself updated with latest happenings in school level education. Keep yourself updated with all latest news and also read articles from teachers which will help you to improve your studies, increase motivation level and promote faster learning

CBSE postpones class 12 exams in Delhi

The Central Board of Secondary Education (CBSE) on Wednesday postponed the board examination of standard XII scheduled for Thursday, that is, on the 27th February 2020 for the areas of north - east Delhi affected by communal riots. The rescheduled date for the exam is...

CBSE exams postponed in Delhi

Due to the increased tension in some parts of Delhi, Delhi government has decided to postpone the CBSE boards exams for class 10 and class 12 in North East Delhi schools only. The dates on which the exams will be scheduled again has not been notified by CBSE till now....

Delhi Government orders closure of all Primary Schools

Delhi Government orders closure of all Primary Schools till 31stMarch due to the CORONAVIRUS A much needed announcement by the Government of Delhi. On Thursday, the Delhi Government instructed all the schools of the state to close operations for the students of Pre-...

CBSE Board Exams to be executed as per normal schedule

The Central Board of Secondary Education (CBSE) announced on Saturday, the 29th of February’2020 that the Board examinations for standard X and XII will be executed according to the decided schedule from 2nd March’2020 onwards. This announcement also includes the areas...

CBSE class 12 Board examination pattern

This year the Central Board of Secondary Education (CBSE) made some important changes to the Class 12 exam pattern. Students should be aware of every minute detail of the modified exam pattern, from adding the internal exam in all subjects to changing the format of...

CBSE postpones class 12 English Exam

CBSE had to postpone the class 12 English Exam, the date for the exam will be announced soon. Please see CBSE notice below

Studies Today