CBSE Class 11 Accountancy: Bills of Exchange NCERT Solutions

Solution: Two commonly used negotiable instruments are Cheques and Bills of Exchange. These instruments facilitate easy transfer of funds and credit transactions.

Solution: Here are two key points of distinction between a Bill of Exchange and a Promissory Note:

1. Parties Involved: A Bill of Exchange involves three parties: the drawer (who makes the bill), the drawee (who accepts and pays the bill), and the payee (who receives the payment). A Promissory Note, however, involves only two parties: the maker (who promises to pay) and the payee (who receives the payment).
2. Nature of Instrument: A Bill of Exchange is a conditional order made by the drawer to the drawee to pay a certain sum. A Promissory Note is an unconditional promise made by the maker to pay a certain sum to the payee.

Solution: The essential features of a bill of exchange are:

1. Written Instrument: It must be in writing, either handwritten or typed.
2. Unconditional Order: It must contain an unconditional order to pay money. It cannot be conditional upon any event.
3. Certainty of Amount and Date: The amount to be paid and the date of payment must be certain or ascertainable.
4. Signed by Drawer: It must be signed by the person who makes the bill (the drawer).
5. Acceptance by Drawee: The drawee must accept the bill by signing it, signifying his agreement to pay.
6. Payable on Demand or Fixed Period: The payment can be made either on demand (at sight) or after a specified period.
7. Payable to a Certain Person or Bearer: The bill must be payable to a specific person, to their order, or to the bearer of the instrument.
8. Legal Stamping: It must be stamped according to the provisions of the relevant law (e.g., Indian Stamp Act).

Solution: The three parties involved in a bill of exchange are:

1. Drawer: This is the person who creates and signs the bill of exchange, ordering the drawee to pay. The drawer is typically the creditor who has granted credit to the drawee.
2. Drawee: This is the person on whom the bill is drawn. The drawee is ordered to pay the amount specified in the bill. Once the drawee accepts the bill, they become known as the acceptor and are liable to pay the amount to the payee.
3. Payee: This is the person to whom the payment is to be made as specified in the bill. Often, the drawer is also the payee, but it can be a third party.

Solution: The maturity of a bill of exchange refers to the date on which the bill becomes legally due for payment. This date is calculated by adding three days of grace to the specified due date of the bill. However, days of grace are not applicable to bills that are payable on demand or at sight. If the period of the bill is stated in days, the maturity is calculated in days. If it's stated in months, it's calculated in months. Importantly, if the calculated maturity date falls on a public holiday, the bill is legally due for payment on the immediately preceding business day.

Solution: A bill of exchange is said to be dishonoured when the drawee fails to make the payment on the maturity date, or when the drawee refuses to accept the bill when presented for acceptance. Dishonour signifies that the acceptor's liability is restored. The accounting entries to record the dishonour of a bill are as follows:

In the books of the Drawer:

Drawee's A/c Dr.

To Bills Receivable A/c

(Being bill dishonoured)

In the books of the Drawee:

Bills Payable A/c Dr.

To Drawer's A/c

(Being bill dishonoured)

Solution: There are two parties to a promissory note:

1. Maker: This is the person who creates the promissory note and makes an unconditional promise to pay a specified sum of money.
2. Payee: This is the person to whom the payment is promised and who will receive the money.