Tag: dishonour of bills

Questions Related to dishonour of bills

Goods costing Rs. 4,00,000 were sent by A to B on consignment. 3/4 of the goods were sold by B at a profit of 20% on sale value. Commission payable to consignee is ordinary commission @ 3% and Del-credere commission @ 2%. A customer did not pay due to insolvency Rs. l,500 and another customer deducted Rs. 2,000 because of dispute regarding quality of.goods. Net amount of commission credited to profit and loss account in the books of consignee will be____.

elements of book keeping and accountancy bill of exchange (trade bill) dishonour of a bill dishonour of bills advantages of bill of exchange

  1. Rs. 15,200

  2. Rs. 16,500

  3. Rs. 17,250

  4. Rs. 16,750

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Correct Option: C

When a bill is discharged, the acceptor debits __________.

elements of book keeping and accountancy bill of exchange (trade bill) dishonour of a bill dishonour of bills advantages of bill of exchange

  1. Creditor's account

  2. Cash account

  3. Bills payable account

  4. Bills receivable account

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Correct Option: C
Explanation:

A bill is discharged by payment in due course by or on behalf of the drawee or acceptor.  While preparing the journal entry for discharge of bill Bills payable account is debited and Drawer account is credited.

When a bill is drawn by A on B, and before the maturity date, B becomes insolvent then in the books of A it is debited to _____________.

elements of book keeping and accountancy bill of exchange (trade bill) dishonour of a bill dishonour of bills advantages of bill of exchange

  1. Bills Receivable Account

  2. Bank Account

  3. B's Account

  4. Bank for Collection of Bills

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Correct Option: C
Explanation:

Insolvent is the person whose assets are not sufficient to pay off his liabilities in full. 

In case of insolvency of the acceptor, the holder would get the proportionate amount of what is due from the bill. 
The journal entry for the transaction should be :-
B's A/c              Dr.

     To Bills receivables A/c 

When discounted bill is honored drawer passes ________journal entry.

elements of book keeping and accountancy bill of exchange (trade bill) dishonour of a bill dishonour of bills advantages of bill of exchange

  1. No Entry

  2. Cash A/c Dr

    To Bill Receivable A/c

  3. Cash A/c Dr

    To Bank A/c

  4. Drawee A/c Dr

    To Bill Receivable A/c

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Correct Option: A

Drawee Passes __________ journal entry for bill Retained , Discounted or Pledged.

elements of book keeping and accountancy bill of exchange (trade bill) dishonour of a bill dishonour of bills advantages of bill of exchange

  1. Cash A/c Dr

    To Bill Payable A/c

  2. Cash A/c Dr

    To Bill Receivable A/c

  3. Bill Payable Dr

    To Drawer A/c

  4. No Entry

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Correct Option: D

When bill sent for collection is honor drawer passes __________journal entry.

elements of book keeping and accountancy bill of exchange (trade bill) dishonour of a bill dishonour of bills advantages of bill of exchange

  1. Cash A/c Dr

    To Bill Receivable A/c

  2. Bill sent for collection A/c Dr

    To Bill Receivable A/c

  3. Bank A/c Dr

    To bill sent for collection A/c

  4. None

Show answer
Correct Option: C

When Bill is Dishonored ___________ is Debited in drawers books.

elements of book keeping and accountancy bill of exchange (trade bill) dishonour of a bill dishonour of bills advantages of bill of exchange

  1. Drawee A/c

  2. Endorse A/c

  3. Bank for Collection A/c

  4. Bill Receivable A/c

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Correct Option: A

On acceptance of bill - the drawee, debit which of these accounts?

elements of book keeping and accountancy bill of exchange (trade bill) dishonour of a bill dishonour of bills advantages of bill of exchange

  1. Drawer's A/c.

  2. Bills Receivable A/c.

  3. Bills Payable A/c.

  4. Endorse A/c.

Show answer
Correct Option: A
Explanation:

In the books of accounts of the drawee (debtor) the following entries of credit purchase & acceptance of bill is passed. 

$1$. Entry for credit purchase $2$. Entry for acceptance of bill  $3$. Net effect of both the entries
  Purchase A/c. ------------------Dr.  Drawer (Creditor) A/c. --------------Dr.  Purchase A/c. ------------------Dr.
 To Drawer (Creditor) A/c.  To Bills payable A/c.  To Bills payable A/c.
In actual only the $1$st & the $2$nd entries are passed the $3$rd entry shown in the table above is just to understand the net effect of these entries. So when the drawee accepts the bill what he does in the real sense is that he shifts the amount of liability from  the  Drawer (creditor) A/c. to Bills payable A/c. And so ultimately what is being reflected in the books of the Drawer(creditor) is that his purchase A/c. is debited withe amount of purchases made and the bills payable A/c. is credited, with the same amount and therefore reflecting as a liability instead of creditor A/c. So in order  to get this desired result, on acceptance of bill the drawee debits the account of the Drawer(debtor). 

Acceptances received and recorded in bills receivable book are transferred to the ledger ______________.

elements of book keeping and accountancy bill of exchange (trade bill) dishonour of a bill dishonour of bills advantages of bill of exchange

  1. on the debit side of relevant personal accounts

  2. on the credit side of relevant personal account

  3. either (a) or (b)

  4. none of the above

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Correct Option: B

Which of the following would be considered a risk-free investment?

book keeping and accountancy bill of exchange (trade bill) dishonour of a bill dishonour of bills advantages of bill of exchange

  1. Gold

  2. Equity in a house

  3. High-grade corporate bonds

  4. Treasury bills

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Correct Option: D
Explanation:

T-bills are considered the safest possible investment and provide what is referred to as a "risk-free rate of return," based on the credit worthiness of the United States of America. This risk-free rate of return is used as somewhat of a benchmark for rates on municipal bonds, corporate bonds and bank interest.