bills of exchange and promissory notes-part 1/5 · a bill of exchange must be in writing. it must...
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Bills of Exchange and Promissory Notes-Part 1/6
CPT Section A Fundamentals of Accountancy Chapter 7 Unit 3
CA. Ajay Lunawat
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Learning Objectives
Meaning of Bills of Exchange & Promissory Notes
Accounting in the books of Drawer and Drawee
Accomodation Bills
Insolvency and Retirement
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Bills of Exchange
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A Man goes for shopping
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3 Options After Shopping
1 • Pay By Cash
2 • Pay By Card
3 • Ask for Credit
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Can you extend me credit
This Document is called BILL OF EXCHANGE
But I am not carrying cash Sure, I am ready
Ok, but I will make a document which you
need to accept
Your total bill amount is Rs.
10,000
In this document, you shall agree to pay me the amount after 30
days from today
Option 3 : Ask for Credit – Scenario 1
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What is Bills of Exchange
Instrument
In Writing
Containing an unconditional order
Signed by the MAKER
Directing a Certain Person
To Pay
A Certain sum of money
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Points to be noted
A Bill of Exchange must be in writing.
It must be dated.
It must contain an order to pay a certain sum of money.
The money must be payable to a definite person or to his order to the bearer.
The draft must be accepted for payment by the party to whom the order is made.
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Parties to Bill of Exchange
DRAWER The party who draws the bill
DRAWEE The party who
accepts the order
PAYEE : The Party to whom the payment is to be made.
Drawer and Payee may be the same
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PROMISSORY NOTE
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Ok, then I have no problem
But I am ready to give you a
Promissory Note
This Document is called PROMISSORY NOTE
Your total bill amount is Rs.
10,000
Please find this document, where I
promise you to pay Rs. 10,000 after 30 days
But I am not carrying cash Thanks!
Option 3 : Ask for Credit – Scenario 2
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What is Promissory Note
A promissory note is an instrument in writing,
Not being a bank note or currency note
Containing an unconditional undertaking
Signed by the maker
To pay a certain sum of money
Only to or to the order of a certain person.
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Characteristics of Promissory Notes
It must be in writing.
It must contain a clear promise to pay.
The promise to pay must be unconditional
The promiser or maker must sign the promissory note.
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Characteristics of Promissory Notes
The maker must be a certain person.
The payee must also be certain.
The sum payable must be certain.
Payment must be in legal currency of the country.
It should not be made payable to the bearer.
It should be properly stamped..
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Basic Questions Bills of Exchange & Promissory Notes
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Question 1
A sold goods to B for Rs. 20,000. A will grant 5% discount to B. B requested A to draw a bill. The amount of the bill will be:
a) Rs.20,000
b) Rs. 19,000
c) Rs. 19,200
d) Nil
Answer (b)
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Question 2 From the following information, find out who can draw the bill if Mr A sold goods to B:
Answer (a)
a) A will draw a bill on B
b) B will draw a bill on A
c) Third party will draw a bill on A
d) None of these
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Question 3 Which of the following statement is false:
Answer (d)
a) B/R is a negotiable instrument
b) B/R must be accepted by drawee.
c) There can be three parties in respect of bills of exchange – drawer, drawee & payee
d) Oral bill of exchange is also valid.
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Question No 4 Which of the following instrument is not a negotiable instrument:
Answer (d)
(a) Bearer cheque
(b) Promissory note
(c) Bill of exchange
(d) Account Payee Crossed Cheque
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Question No 5
The promissory note should be signed by:
Answer (d)
(a) Drawer
(b) Drawee
(c) Payee
(d) Promiser
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THANK YOU