Get summaries, questions, answers, solutions, notes, extras, theories, practicles, PDF, and guide of Chapter 4 Bills of Exchange, NBSE Class 10 Book Keeping (BK) textbook, which is part of the syllabus of students studying under Nagaland Board. These solutions, however, should only be treated as references and can be modified/changed.
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Summary
Bills of exchange and promissory notes are important in business. They help people buy and sell goods on credit safely. A bill of exchange is a written order. It tells one person to pay a certain amount to another person after a set time. This helps the seller feel sure about getting paid later. The bill must be clear about the date, amount, and who will pay. It needs a signature too. There are three main people involved. The drawer writes the bill. The drawee accepts it. The payee gets the money.
A promissory note works differently. It is a promise to pay a certain amount. The maker promises to pay the payee. It does not need acceptance like a bill of exchange. Both bills and promissory notes have their own benefits. They make buying and selling easier. They also help people plan their finances better.
When someone receives a bill, they can use it in different ways. They can keep it until the payment date. They can also give it to someone else as payment. This is called endorsement. Another option is to get cash from a bank before the due date. This is called discounting. Banks charge a fee for this service. People can also send bills to banks for collection. The bank collects the payment on their behalf.
The chapter explains how to record these transactions. It gives examples of journal entries. These show how each party writes down what happens. Entries differ based on whether the bill is kept, endorsed, discounted, or sent for collection. Each situation has its own rules.
Days of grace are added to calculate the due date. This means extra days after the set period. If the due date falls on a holiday, it moves to the previous working day. Bills are legal documents. If someone does not pay, the holder can take action.
The text lists differences between bills of exchange and promissory notes. It talks about parties involved in both. It also discusses acceptance, stamps, and noting. Noting is done if a bill is not paid. The chapter provides practice questions. These help understand the concepts better. Examples show calculations for due dates and discounts. They explain how to handle different scenarios involving bills and notes.
Textbook solutions
Multiple Choice Questions (MCQs)
1. A bill of exchange is
a. A promise to pay
b. A request to pay
c. An order to pay
d. None of these
Answer : c. An order to pay
2. A promissory note is made by a
a. debtor
b. supplier
c. creditor
d. customer
Answer : a. debtor
3. A bill of exchange has
a. One party
b. Two parties
c. Three parties
d. Four parties
Answer : c. Three parties
4. On maturity, a bill is met by its
a. drawer
b. drawee
c. payee
d. endorsee
Answer : b. drawee
5. The person to whom the amount of a bill is payable is called the
a. Drawer
b. Payee
c. Drawee
d. Endorsee
Answer : d. Endorsee
Very Short Answer Type Questions
1. What is a bill of exchange?
Answer: A bill of exchange is an instrument in writing, an unconditional order, signed by the maker, directing a certain person to pay a certain sum of money only to or to the order of a certain person or to the bearer of the instrument.
2. What is a promissory note?
Answer: A promissory note is an instrument in writing (not being a banknote 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 or to the bearer of the instrument.
3. What are the parties to a bill of exchange?
Answer: The parties to a bill of exchange are:
i. Maker: The debtor who promises to make the payment is the maker. The note must be signed by its maker.
ii. Payee: The person who receives the payment of the promissory note is the payee. In the case of promissory notes, the payee may be the person who has been addressed in it or is its holder.
4. What is the period for which discount is calculated while discounting a bill?
Answer: The bank charge discount for the period it has advanced the loan.
Short Answer Type Questions
1. Enumerate the characteristics of a bill of exchange.
Answer: The characteristics of a bill of exchange are:
i. An unconditional order.
ii. Written document.
iii. Order to pay specified amount.
iv. Payment on a specified date.
v. Signed by the drawer.
vi. Payment to drawer or endorsee.
2. What do you mean by “discounting” and “endorsement” in bill of exchange?
Answer: Discounting of the bill means encashing the bill or borrowing from the bank on the security of the bill. The drawer transfers the possession and also the ownership of the bill. The bank charges certain interest here, known as a discount for the period, it has advanced the amount. On the due date, the bank will present the bill to the drawer and receive the payment.
According to trade practice, the drawer may accept the bill drawn by his creditor. Instead of accepting a fresh bill, the drawer may endorse (transfer) his Bills Receivable. The endorsee will be the owner of the bill and he will realise the payment of the bill on the due date from the drawee.
Long Answer Type Questions
1. What are promissory notes? Prepare a specimen promissory note.
Answer: A promissory note is an instrument in writing (not being a banknote 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 or to the bearer of the instrument.
Specimen promissory note:
2. What are the differences between promissory note and bill of exchange? Explain.
Answer: The differences between promissory note and bill of exchange are:
| Points of difference | Bills of exchange | Promissory notes |
| Parties | There are three parties in the bills of exchange, i.e., drawer, drawee and payee. | There are two parties in promissory notes, i.e., maker and payee. |
| Drawer | It is drawn by the creditor. | It is made by the debtor. |
| Acceptance | Acceptance is a must. | Acceptance is not required. |
| Nature | It is an order to the debtor to make a payment. | It is a promise to make payment. |
| Copies | In the case of foreign bills, three sets are prepared. In the case of inland bills, only one copy is prepared. | Only one copy is prepared. |
| Noting | In the case of dishonour of the bills, it is noted and protested. | Promissory notes cannot be noted. |
3. Enumerate the various advantages of a bill of exchange.
Answer: The various advantages of a bill of exchange are:
i. Evidence of debt: Bill is accepted by the debtor. Bills of exchange in this way serve as evidence.
ii. Reminder not required: Bill is payable after the expiry of a certain period on a specific date. Therefore, it is not necessary to remind for the payment again.
iii. Economy of money in circulation: Bills of exchange is a form of credit money. Bill is used and accepted as a form of payment by traders, which is economical.
iv. Legal document: Bills of exchange is a legally valid document in the eyes of the law.
v. Convenient purchasing: The use of bills of exchange has facilitated credit purchases.
vi. Benefits of discounting: In case the drawer is in the immediate need of funds, she/he can get the bill discounted with the bank and receive the funds even before the due date.
4. Explain the following terms:
a. Drawer
b. Drawee
c. Endorsee
d. Payee
e. Holder
Answer: a. The drawer is the party who draws the bill. The drawer must be the creditor. She/he may either be a seller of goods or lender of money.
b. The drawee is the person or the party who has to make the payment, or who accepts to make the payment. In case of withdrawal from the bank, the drawee is the ‘bank’.
c. An endorsee is a person in whose favour a bill of exchange is endorsed after the endorsement of a bill.
d. The payee is the person who receives the payment. In case of bills of exchange, the drawer will be the payee of the bill, if she/he retains the bill till the date of maturity and realises its payment.
e. In bills of exchange, a holder is a person who is in possession of a bill.
5. What are days of grace? Are days of grace allowed on all bills?
Answer: Days of grace are three additional days that are compulsorily added while calculating the due date of a bill. Initially, 3 days of grace were allowed to the drawee as a matter of sympathy and kindness, but it became a practice.
Yes, days of grace allowed on all bills.
6. What do you understand by:
a. Acceptance of bill
b. Payment of bill
Answer: a. The bill must specify the name of the drawee. It must be accepted by the drawee, otherwise, it will not be a bill of exchange. Before the acceptance the bill is known as draft, meaning rough sketch. The draft must be accepted by the drawee to make it a bill of exchange.
b. On the due date of a bill, the drawer will send the bill to the drawee, so the Bills Receivable account will be credited and Cash account will be debited. This is called payment of a bill.
Practical Questions
Questions
Question 1. Calculate the due dates of the bills in the following cases:
| Date of Bills | Period |
| February 1, 2009 | 2 months |
| January 31, 2009 | 3 months |
| September 30, 2009 | 2 months |
| September 30, 2009 | 3 months |
| December 29, 2009 | 2 months |
| December 31, 2009 | 2 months |
| July 15, 2009 | 30 days |
| January 27, 2008 | 1 month |
Hint: 2008 was a leap year.
Question 2. On September 30, 2011, Atso draws a bill of ₹ 1,500 on Nise. Nise accepts this bill immediately and returns it to Atso. The bill is due for 3 months after the date. Prepare the journal entries.
Question 3. Ikali draws a bill of ₹ 1,000 on John on August 5. The bill is payable after 6 months. The bill was accepted by the drawee on presentation and met on the due date. Show the transactions on the books of both the parties.
Question 4. On January 21, 2011, Mr. Ronaldo draws a bill for ₹ 2,000 on Mr. Messi at 3 months, which he endorses over to Mr. Kane. The bill is met on the due date. Prepare the journal entries in the books of Mr. Ronaldo and Mr. Messi.
Question 5. On January 15, 2006, Ihuto sold goods to Kavishe for ₹ 6,000. On the same day, Kavishe accepted a bill drawn upon her by Ihuto for 3 months for ₹ 6,000. Ihuto discounted the bill on March 18, 2006 at 12% pa at her bank and Kavishe met the bill at maturity. Make journal entries in the book of both parties.
Question 6. On April 1, Sachin sells goods to Virat valued at ₹ 2,000. Virat accepts the bill of exchange for the amount at 3 months. On May 1, Sachin endorses it to Hardik in settlement of a debt of an equal amount. On the due date, the bill was honoured by payment. You are required to show entries in the books of Sachin and Virat.
Question 7. Hoishike draws a bill on Kevali for ₹ 2,000. On return of the acceptance by Kevali, Hoishike discounts it with his bankers for ₹ 950. On the due date the bill is honoured. Pass entries in the books of Hoishike and Kevali.
Question 8. Bruce draws a bill on Tom for ₹ 3,000 dated January 1, at 4 months. The bill is accepted on the same date and forthwith discounted by Tom with his bankers at 5% p.a. The bill is duly met at maturity. Show journal entries in the books of all parties.
Question 9. On January 1, Otoka sells good to Krosakhol for ₹ 15,000. On that date, Krosakhol accepted a bill drawn upon him by Otoka at 2 months for ₹ 15,000. Otoka retains it till due date and on the due date returns the bill to the banker for collection. In due course, Otoka receives the information from the bank that the bill has been duly met. Prepare the journal entries in the books of Otoka and Krosakhol.
Question 10. Akum received an acceptance for ₹ 6,000 from Nise on July 1, 2012, at 3 months. Akum got this bill discounted at 6% p.a. at his bank. On the due date Nise paid the required amount. Provide the journal entries in the books of both Akum and Nise.
Question 11. On July 15, 2010, Anushka sold goods to Deepika for ₹ 3,000 and sent her a bill of 3 months for the amount. Deepika accepted the bill and returned the same to Anushka. On October 1, 2011, Anushka purchased goods from Alia for ₹ 4,000 and endorsed Deepika’s acceptance to Alia along with a cheque for ₹ 800, ₹ 200 to be taken as discount. On maturity, the bill was duly paid. Pass journal entries in the books of Anushka and Deepika.
Question 12. Vikeyno owed ₹ 5,100 to Zhenito. On January 15, 2008, she accepted a bill of ₹ 5,000 for 2 months drawn by Zhenito in full settlement of his debt. On January 18, 2008, Zhenito presented the bill to his creditor Neiphu. The bill was duly met on the date of maturity. Pass journal entries in the books of Vikeyno and Zhenito.
Question 13. On January 1, Akash sold goods worth ₹ 6,000 to Alex and drew a bill to Alex for 2 months for the amount. Alex accepted the bill and returned it to Akash. The bill was duly honoured at maturity. Pass the entries in the books of both the parties.
Question 14. A bill of ₹ 1,000 was drawn by Jerry on George and accepted by the latter, payable at the State Bank of India. Assuming that George meets the bill of the due date, show the journal entries that will be passed in the books of Jerry under each of the following circumstances:
a. The bill is retained by Jerry till the due date
b. The bill is discounted with the bankers for ₹ 957
c. The bill is endorsed by George in the settlement of debt of ₹ 1,100
d. The bill is sent to bankers for collection.
Question 15. A bill of ₹ 5,500 is drawn by Roy on Jim and accepted by the latter payable at the UCO Bank. Show the journal entries that will be passed in the books of both parties under each of the following circumstances:
a. The bill is retained by Roy till the due date
b. The bill is discounted with the bankers for ₹ 4,500
c. The bill endorsed to his creditor Michael in settlement of his debt for ₹ 4,200
d. The bill is sent to bankers for collection.
Solutions
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Extras
Additional questions and answers
1. Define bills of exchange?
Answer : A bill of exchange is defined as an instrument in writing containing an unconditional order, signed by the maker, directing a certain person to pay a certain sum of money only to or to the order of a certain person or to the bearer of the instrument.
28. What are promissory notes? Discuss their special features clearly.
Answer : 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 or to the bearer of the instrument. Promissory note is a promise to make the payment of a certain specified amount to the creditor on demand or after the expiry of a certain period.
The special features of promissory notes are:
- It is a promise.
- It is a document in writing.
- It is a promise to pay a specified amount.
- Payment may be made on demand or after the expiry of a certain period.
- The promise to make the payment is unconditional.
Additional MCQs
1. According to the Indian Negotiable Instrument Act, 1881, a bill of exchange is:
A. A promise to pay
B. A conditional order
C. An unconditional order
D. A cheque
Answer: C. An unconditional order
26. The stamps on a bill are used to:
A. Validate payment
B. Fix the amount
C. Ensure legal liability
D. Record the drawer
Answer: C. Ensure legal liability
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