Accounting For Bill Of Exchange

   ACCOUNTING FOR BILL OF EXCHANGE

No businessman wants to sell goods on credit to his customers who may prove unable or unwilling to pay their debts. Today, however, in every field of retail trade it appears that sales and profits can be increased by selling goods on credit basics. The manufacturers and the wholesalers sell goods mostly on credit. Credit is very powerful instrument to promote sales, so most of the business transactions, in most business concerns, are carried out on credit basis.

                A bill of exchange is a method of payment used between businessman which has certain advantages over other methods of payments. It has a very precise definition which is given below, from the bill of exchange Act 1882.

A Bill OF Exchange is defined as:

     " An unconditional order in writing, addressed by one person  and signed by the person giving it,requiring the person to whom it is addressed to pay on demand or at a fixed or determinable future time a sum  certain in money to or to the order of a specified  person, or to the bearer" 

The following points must be kept in mind to understand the definition:

(a)  The person who writes out the order to pay is called the drawer.

(b) The person whom the bill of exchange is drawn (who is order to pay) is called the drawee.

(c) The  drawee may accept the bill. This is a special use of word "Accept" because it means that he accepts to pay the amount payable expressed in the bill, i.e. if he accept the obligation to pay he write "Accepted" across  the face of the bill and sign it. From that time on he is known as the "Acceptor" of the bill and has absolute liability to honour the bill on the due date.  

(d) The amount of money must be mentioned clearly. For example i cannot  make out a bill requiring someone to pay the value of my house or car. That is an uncertain sum. It must say ' five thousand rupees or ten thousand rupees'.

(e) The time must be fixed or at least be determinable. For  example "60 days after" date is  quite easily determinable. If the bill is made out on 1st July, it will be 29th August.

(f) The person who is entitled to receive the money from the acceptor is called the "payee" It is usually the drawer who is supplying goods to the value of the of the bill, and wants to be paid from them. If the drawer decides, the bill can be made payable to someone else by endorsing it. That is why definition says, to pay.....to, or to the order of, a specified 

(g) A bill can be made payable to a bearer, but it is risky, since any finder of the bill or any, thief, cam claim the money from acceptor.