Renewal of Bill of Exchange Class 11

The acceptor of the bill in certain situations may find it hard to repay the amount of bill on the due date . In such a situation, therefore the acceptor may  request  the holder of the bill , to substitute the old one with a new bill , which then would allow the acceptor of the bill with some extension of time for the repayment. If the holder of the bill agrees to such a request, then the old bill is cancelled , and the new bill is drawn which is then accepted by the drawee. Therefore, this process of cancellation of the old bill and its substitution with the new  bill is called renewal of the bill of exchange.




Renewal of Bill of Exchange- Journal Entries : –

Renewal of Bill of Exchange – Journal Entries in the books of drawer:

Drawee’s A/c Dr

To Bills Receivable A/c

(Being original bill of exchange cancelled)

 

Drawee’s A/c Dr

To Interest A/c

(Being Interest due from Drawee, for extended period recorded in the books of account)

 

Cash/Bank A/c DR

To Drawee’s A/c

(Being part payment made towards original bill of exchange )

 

Bills Receivable A/c Dr

To Drawee’s A/c

(Being new bill drawn – With the amount of the new bill)



Renewal of Bill of Exchange – Journal Entries in the books of Drawee : –

Bills Payable A/c Dr

To Drawer’s A/c

(Being original bill of exchange cancelled)

Interest A/c Dr

To Drawer’s A/c

(Being Interest due to Drawer, for extended period recorded in the books of account)

Drawer’s A/c Dr

To Cash/Bank A/c

(Being part payment made towards original bill of exchange )

Drawer’s A/c Dr

To Bills Payable A/c

(Being new bill drawn – With the amount of the new bill)



JOURNAL ENTRY IN THE BOOKS OF DRAWER- INTEREST ON RENEWAL OF BILL OF EXCHANGE

Accounting for Bills of Exchange – Question 1 :

A Bill of Rs. 8000 was drawn by R and accepted by S ,and is payable after 3 months. Before the due date, S requests R to cancel the Bill and to draw a fresh Bill on him for Rs. 9200 for a further period of 1 month. What would be the Journal entry for interest charged on Renewal of Bill in the books of R ?

Explanation:

S A/c Dr. 1200 ( 9200 – 8000 )

To Interest A/c 1200

CALCULATION OF INTEREST-RENEWAL OF BILL OF EXCHANGE

Accounting for Bills of Exchange – Question 2 :

On 01.01.2016 Mr.X drew a Bill on Mr.Y for Rs. 20000 . Then at maturity, Mr.Y requested Mr.X to accept Rs. 6000 immediately and then drew upon him another Bill for the remaining amount of 1 month along with interest@ 6 % p.a. You are required to calculate the amount of interest ?

Explanation:

Interest will be charged on the balance amount which has not been paid on due date

= ( Bill Amount – Amount paid ) x Interest rate x Time period

= ( 20000 – 6000 ) x 6 % x 1/12

14000 x 6 % x 1/12

= Rs. 70

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