Class 11 Accountancy - ISC
Bills of Exchange
The chapter 'Bills of Exchange' in Class 11 ISC Accountancy covers the legal instruments used in commercial transactions to facilitate credit sales. Students learn the mechanics of drawing, accepting, discounting, endorsing, and honouring or dishonouring a bill. The chapter focuses heavily on journal entries in the books of both the drawer and the drawee, including scenarios involving renewal, retirement, and insolvency. This is a high-weightage topic in board exams, frequently featuring comprehensive numerical problems that test students' understanding of accounting treatments for various methods of bill disposal.
Start Learning FreeKey Concepts
Bill of Exchange
An unconditional order in writing addressed by one person to another, signed by the creator, requiring the person to pay a certain sum of money only to a specific person or the bearer.
Retaining vs. Discounting
Retaining involves holding the bill until maturity for payment, whereas discounting allows the drawer to receive immediate cash from a bank for a small fee before the maturity date.
Endorsement
The process of transferring ownership of a bill of exchange to a third party (a creditor) to settle an existing debt.
Dishonour of a Bill
Failure of the drawee or acceptor to make payment on the due date, which cancels the original settlement and reinstates the debtor-creditor relationship.
Noting Charges
A fee paid to a Notary Public to officially record the fact that a bill has been dishonoured, which is ultimately recoverable from the drawee.
Renewal and Retirement
Renewal involves cancelling an old bill and creating a new one with extended time (often with interest), while retirement means paying off the bill before its maturity date in exchange for a rebate.
Important Formulas
Board Exam Info
In the ISC Class 11 Accountancy exam, this chapter typically carries around 8 to 12 marks. Questions usually include a long-answer numerical problem requiring journal entries in the books of the drawer and drawee for various transactions, alongside short theoretical questions on terms like noting charges, grace days, or types of endorsement.
Frequently Asked Questions
What happens to the days of grace if the maturity date falls on a sudden public holiday?
If the maturity date falls on a sudden or unforeseen public holiday, the preceding day is treated as the due date. However, if it falls on a gazetted Sunday or national holiday, the succeeding day is the due date.
Who bears the noting charges in case a bill is dishonoured?
Initially, the holder of the bill pays the noting charges to the Notary Public, but the ultimate burden falls on the drawee because their default caused the dishonour.
Is a promissory note the same as a bill of exchange?
No. A bill of exchange is an order to pay drawn by a creditor, while a promissory note is a promise to pay made by a debtor.
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