Page 11 - LESSON NOTE

New bill

Drawer’s A/c Dr.

To Bills Payable A/c

Retiring of the Bill

There are instances when a bill of exchange is arranged to be retired before the due
date by mutual understanding between the drawer and the drawee. This happens
when the drawee of the bill has funds at his disposal and makes a request to the
drawer or holder to accept the payment of the bill before its maturity. If the holder
agrees to do so, the bill is said to have been retired.

The retiring of a bill draws a curtain on the bill transactions before the expiry of its
normal term. To encourage the retirement of the bill, the holder allows some
discount called Rebate on bills for the period between date of retirement and
maturity. The rebate is calculated at a certain rate of interest.

The accounting treatment on the retirement of a bill is similar to the accounting
treatment when a bill is honoured by the acceptor on the due date in the ordinary
course. The only difference between the two relates to the granting of rebate. The
following journal entries are recorded:

In the books of the holder

On retiring the acceptance and rebate allowed

Cash A/c Dr.

Rebate on bills A/c Dr.

To Bills Receivables A/c

In the books of the drawee

Bills Payable A/c Dr.

Cash A/c Dr.