In certain cases, the acceptor of the bill , may find it difficult to repay the amount of bill on the due date . in such a case, the acceptor may request the holder of the bill , to substitute the old one with a new bill , which would allow the acceptor of the bill some extension of time for repayment. If the holder of the bill agrees two such a request, then the old bill is cancelled , and a new bill is drawn which is accepted by the drawee. This process of cancellation of the old bill and its substitution with the new bill , is known as renewal of 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 X draws a Bill on Y for Rs. 20000 . At maturity, Y requests X to accept Rs. 6000 immediately and drew upon him another Bill for the remaining amount for 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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