Who is the drawer of a bill of exchange?

The creditor who draws and signs the bill. The drawer is the creditor who makes and signs the bill and is entitled to receive the money. For him the bill is Bills Receivable.

The debtor who accepts the bill

The person to whom money is paid

The bank that discounts the bill

Which Section of the Negotiable Instruments Act, 1881 defines a bill of exchange?

Section 5. Section 5 defines the bill of exchange, while Section 4 defines the promissory note.

In the books of the drawee, a bill of exchange accepted by him is shown as

Bills Payable. The acceptor has to pay the amount on the due date, so the bill is a liability called Bills Payable.

A bill of exchange before it has been accepted by the drawee is called a

Draft. A bill before acceptance is a draft; it becomes a bill of exchange only when the drawee signs "Accepted".

For which of the following bills are days of grace NOT allowed?

Bill payable on demand. Days of grace are not allowed on bills payable on demand or at sight; they are allowed on after-date and after-sight bills.

Bill payable 3 months after date

Bill payable 2 months after sight

Bill payable 90 days after date

Maharashtra State Board · HSC Commerce · Class 12 (Std XII)

Class 12 Book Keeping and Accountancy Chapter 7: Bills of Exchange

Short notes, key concepts, quick revision and practice MCQs with answers

Explains the bill of exchange and promissory note as credit instruments, the parties, types of bills and how the due date is found, then shows the journal entries when a bill is retained, discounted, endorsed, sent for collection, renewed, retired or dishonoured.

Key concepts: Bills of Exchange

Bill of exchange: A written, dated and stamped unconditional order signed by the drawer, telling the drawee to pay a fixed sum to a named person or to the bearer. It becomes a bill only once the drawee accepts it.
Parties to a bill: The drawer (creditor) draws and signs it; the drawee (debtor) accepts and pays; the payee receives the money. The bill is Bills Receivable for the drawer and Bills Payable for the drawee.
Promissory note: A written unconditional promise, signed by the maker, to pay a fixed sum to a named person or the bearer. It has only two parties: the maker (promisor) and the payee (promisee).
Due date and days of grace: Due date = date of bill (or acceptance for after-sight bills) + term + 3 days of grace. Grace is not given on demand or at-sight bills. If the due date is a public holiday, payment is due on the preceding working day.
Types of bills: Trade bill (genuine transaction) and accommodation bill (no consideration, to oblige friends); inland bill (same country) and foreign bill (different countries); after date, after sight and demand bills.
Discounting, endorsement and collection: The holder can hold the bill to maturity, discount it with a bank (bank deducts discount), endorse it to a creditor, or send it to the bank for collection (bank charges a fee).
Dishonour, noting and protest: A bill is dishonoured by non-acceptance or non-payment. A Notary Public notes the dishonour and issues a protest certificate. Noting charges are paid by the holder but finally borne by the drawee.
Renewal, retirement and insolvency: Renewal cancels the old bill for a new one on later date, usually with interest. Retirement is early payment, earning a rebate. On insolvency the bill is cancelled, a final dividend is received and the rest is bad debt.

Quick revision: important points

Bill of exchange is defined in Section 5 and promissory note in Section 4 of the Negotiable Instruments Act, 1881.
Legal due date = nominal due date + 3 days of grace; no grace for demand or at-sight bills.
Discount = amount of bill x rate/100 x unexpired period (months/12 or days/365).
Retained bill dishonoured: Drawee's A/c Dr to Bills Receivable A/c. Discounted: credit Bank A/c. Endorsed: credit Endorsee's A/c.
Dishonour by non-payment: drawee debits Bills Payable A/c and Noting Charges A/c, credits Drawer's A/c.
Retirement gives rebate (expense for drawer, income for drawee); insolvency gives bad debts for the unpaid part.

Practice MCQs with answers

Who is the drawer of a bill of exchange?
1. The debtor who accepts the bill
2. The creditor who draws and signs the bill
3. The person to whom money is paid
4. The bank that discounts the bill
Show answer
Answer: B. The creditor who draws and signs the bill
The drawer is the creditor who makes and signs the bill and is entitled to receive the money. For him the bill is Bills Receivable.
Which Section of the Negotiable Instruments Act, 1881 defines a bill of exchange?
1. Section 3
2. Section 4
3. Section 5
4. Section 6
Show answer
Answer: C. Section 5
Section 5 defines the bill of exchange, while Section 4 defines the promissory note.
In the books of the drawee, a bill of exchange accepted by him is shown as
1. Bills Payable
2. Bills Receivable
3. Bank overdraft
4. Discount received
Show answer
Answer: A. Bills Payable
The acceptor has to pay the amount on the due date, so the bill is a liability called Bills Payable.
A bill of exchange before it has been accepted by the drawee is called a
1. Promissory note
2. Hundi
3. Cheque
4. Draft
Show answer
Answer: D. Draft
A bill before acceptance is a draft; it becomes a bill of exchange only when the drawee signs "Accepted".
For which of the following bills are days of grace NOT allowed?
1. Bill payable 3 months after date
2. Bill payable on demand
3. Bill payable 2 months after sight
4. Bill payable 90 days after date
Show answer
Answer: B. Bill payable on demand
Days of grace are not allowed on bills payable on demand or at sight; they are allowed on after-date and after-sight bills.

All Class 12 Book Keeping and Accountancy chapters

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