Endorsement of Bill of Exchange:
Learning Objectives:
-
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) |
|
|
|
|
