Endorsement of Bill of Exchange


Endorsement of Bill of Exchange:

Learning Objectives:

  1. What are the journal entries in the books of drawer, acceptor and endorsee when a bill of exchange is endorsed by the drawer?

When a bill of exchange is negotiated i.e., transferred from one person to another person so as to constitute the transferee the holder of a bill, each person through whose hands it passes, must write his name on the back of the bill. This is know as the “endorsement of a bill of exchange“. Some times the drawer of the bill does not keep the bill with him until the date of the maturity. He endorses it to some other party in payment of the debt due from him. When the bill is endorsed to any other party the journal entries will be:

Drawer’s Books

 When a bill of exchange is endorsed:
Endorsee’s personal account [Dr.]
     To Bills receivable account       [Cr.]

Acceptor’s Books:

His books remain unaffected. He  will pay it on the due date to the holder and usual entry for the payment will be passed:

Endorsee’s Books:

When he will receive an endorsed bill, he will treat it just like an ordinary bill:

Bill receivable account [Dr.]
     To Transfer’s personal account [Cr.]

Example:

A bill for $2,000 is drawn by P on Q and accepted by the later. P transfers it to his creditor R. On the due date the acceptance is duly met.

Record the above transactions in the books of P, Q and R.

Journal Entries in the Books of P

Bills receivable account 2,000
     To Q 2,000
(Acceptance received)

R 2,000
     To Bank for collection account 2,000
(Bill endorsed)

Journal Entries in the Books of Q

P 2,000
     To Bills payable account 2,000
(Acceptance given)

Bills payable account 2,000
     To Cash account 2,000
(Bill paid)

Journal Entries in the Books of R

Bill receivable account 2,000
     To P 2,000
(Bill received from from a debtor – Q)

Cash account 2,000
     To Bill receivable account 2,000
(amount of the bill received)

You may also be interested in other articles from “accounting for bills of exchange page” chapter:

  1. Definition and Explanation of Bill of Exchange
  2. Advantages of a Bills of Exchange
  3. How a Bill of Exchange Functions
  4. Promissory Note
  5. Difference between Bill of Exchange and Promissory Note
  6. Difference Between Bill of Exchange and Cheque/Check
  7. Recording Transactions of Bill of Exchange
  8. Drawing, Acceptance, and Payment of Bill of Exchange
  9. Discounting of Bill of Exchange
  10. Bills of Exchange for Collection
  11. Endorsement of a Bill of Exchange
  12. Dishonour of a Bill of Exchange
  13. Renewal of a Bill of Exchange
  14. Retiring of a Bill of Exchange
  15. Accommodation Bill of Exchange
  16. Insolvency of the Acceptor in a Bill of Exchange

Other Related Accounting Articles:

Recommended Books !



Or

Download E accounting book in MS-word format for just 20 $ - Click here to Download
This entry was posted in Bills of Exchange and tagged , . Bookmark the permalink.

Comments / Questions

No Comments or Questions yet be the first to comment.



Leave a comment or question

(required)

(required)