Bill of exchange define Bill of exchange As per the indian negotiable Act. 1881 A bill of exchange is an instrument in writing contaning an unconditional Order, signed by the maker, directing a certain person to pay a certain sum of money only at a specified time to a certain person or according to is order or to the bearer of the instruments.
CHARACTERISTICS OF BILL OF EXCHANGE 1. A bill must be in writing. So an oral order cannot be called a bill. 2. The bill must be addressed to a specific person. 3. The bill must be contain an order to pay money, not a request. 4. The amount shown in the bill must be definite and clear. 5. The date of writing the bill must be clear in the bill. 6. The duration of the bill must be definite.
PARTIES TO A BILL OF EXCHANGE <ul><li>Normally there are three parties to a bill of exchange .
Businessmen can ease financial difficulties of one another by drawing accommodation bill on one another. </li></ul>
Example <ul><li>Niyati sold goods of Rs 8000on credit to Nidhi on 5-5-03. On the same day, Niyati drew a bill on Nidhi accepted. On 10-5-03 Niyati endorsed this bill in favour on crediter Ronak.The amount of the bill was paid on the maturity date. Pass journal entires in the books of Niyati and Nidhi. </li></ul>
Journal of Niyati Date Particulars L F Debit Rs Credit Rs May 5,'03 Nidhi's A/c Dr To Sales A/c ( Being goods sold) 8000 8000 May 5,'03 Bills Receivable A/c Dr To Nidhi's A/c ( Being bill accepted by Nidhi ) 8000 8000 May 10,'03 Ronak's A/c Dr To Bills Receivable A/c ( Being bill endorsed to Ronak) 8000 8000 June 7,'03 No Entry
Journal of Nidhi Date Particulars LR Debit Rs Credit Rs May 5,'03 Purchase A/c Dr To Niyati's A/c (Being purchase of goods ) 8000 8000 May 5,'03 Niyati's A/c Dr To Bills Payable A/c (Being bill accepted ) 8000 8000 May 10,'03 No Entry June 7,'03 Bills Payable A/c Dr To Bank/Cash A/c ( Being amount of the bill paid) 8000 8000
CHARACTERISTICS OF A PROMISSORY NOTE <ul><li>A promissory note must be in writing so an oral promise cannot be called a promissory note.
The promissory note must contain a promise to pay money (certain amount ).
The promise made in the promissory note must be unconditional.
The date of making the promissory note must be cleary stated.
SPECIMEN OF A PROMISSORY NOTE Manekchowk Ahmedabad Date-22/12/2010 1000 I promise to pay Rupees one thousand only to pathan aman or as per order after two months from today, for the value received. Revenue Stamp Signature XYZ Rs ig
DIFFERENCE BETWEEN OF EXCHANGE AND PROMISSORY NOTES Points Bill of exchange Promissory Notes 1. Order or Promise A bill of exchange is an unconditional order to pay money . A promissory note is an Unconditional promiseto pay money. 2. Who Draws on whom A bill is drawn by a creditor on his debtor. A promissory note is made by a debtor and sent to his creditor. 3. Need for Acceptance A bill does not become o[erative unless it is accepted by the person on whom it is drawn. There is no need for acceptance Of a promissory note as it is made By the debtor himself. 4.Parties There are three parties to a bill-drawer of the bill, acceptor of bill and receiver of money. There are two parties to promissory note-maker of the note and receiver of the money.