Page 9 - LESSON NOTE

Where endorsee pays

Drawee’s A/c Dr.

To Endorsee A/c

When the bank pays on discounted bill

Drawee’s A/c Dr.

To Bank A/c

When the bank pays in the event of sending the bill for collection to the bank

Drawee’s A/c Dr.

To Bank A/c

Renewal of the Bill

Sometimes, the acceptor of the bill foresees that it may be difficult to meet the
obligation of the bill on maturity and may, therefore, approach the drawer with the
request for extension of time for payment. If it is so, the old bill is cancelled and
the fresh bill with new terms of payment is drawn and duly accepted and delivered.
This is called renewal of the bill. Since the cancellation of bill is mutually agreed
upon noting of the bill is not required.

The dreawee may have to pay interest to the drawer for the extended period of
credit. The interest is paid in cash or may be included in the amount of the new
bill. Sometimes, a part of the amount due may be paid and the new bill may be
drawn only for the balance.

For example, a bill of ` 10,000 is cancelled on a cash payment of ` 3,000 and
acceptance of a new bill for the balance of ` 7,000 plus interest as agreed between
the parties. The journal entries in the books of the drawer and the drawee will be
the same as that of dishonour of bill. As for the interest invalued, if it is not paid in
cash, the drawer debits the drawee’s account and credits the interest account, and
the drawee debits the interest and credits the drawer’s account in his books.