Page 121 - DEBK-XI(2020)

16.2 Double Entry Book Keeping—CBSE XI

CHAPTER SUMMARY

• A Bill of Exchange is 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.
• Parties to a Bill of Exchange are:
(i) The Drawer—the party who makes the order.
(ii) The Drawee—the party who accepts the order.
(iii) The Payee—the party to whom the amount is to be paid.
• Types of Bill of Exchange are:
(i) Trade Bill—a bill drawn and accepted for a business transaction.
(ii) Accommodation Bill—a bill drawn and accepted for mutual help.

Accommodation Bill is not a Part of Syllabus.

• A Promissory Note is an instrument in writing (not being a bank note or a 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.

• Parties to a Promissory Note are:
(i) The Maker—the party who makes the note.
(ii) The Payee—the party to whom the amount is to be paid.

Important Terms
• Term or Tenure of Bill is the period in between the dates of drawing the bill and when it
becomes due for payment.
• Due Date or Date of Maturity is the date on which the bill becomes due for payment.

• Days of Grace is a period of three days post date of maturity. It is a practice to add three
days of grace.

• Discounting means withdrawing the bill amount from the bank before the instrument
becomes due for payment. The bank charges discounting charges for paying before the
due date.
• Endorsement means transfer of the instrument (bill, Promissory Note or cheque) to
another person.
• Dishonour means a situation when the instrument is not paid.

• Retirement of Bill means that the Drawee pays the bill before it becomes due for payment.
• Renewal of Bill means replacement of the instrument with a new instrument with the
consent of the holder.