Page 286 - VIRANSH COACHING CLASSES

Renewal Bill of Exchange
Cancellation of bill on maturity in return of a new bill for an extended period of credit is known as
renewal of bill of exchange. When the acceptor of the bill after acceptance has some doubt that he
would not be able to honour the bill on the due date, he requests the Drawer to cancel the original
bill and to draw a fresh bill on him for a further period of time. If the Drawer agrees to such on offer
the Drawee gets extra time of credit for which Drawee has to pay interest. Amount of interest can be
paid along with part payment or with the new bill.
Steps in Renewal of Bill

i. Cancellation or Dishonour of old bill.
ii. Interest due on balance.
iii. Receiving / Paying of part payment.
iv. Drawing and acceptance of new bill.

Accounting Treatment in the Books of Drawer and Drawee :
Transaction Books of Drawer Books of Drawee
1 Cancellation of old Drawee’s A/c ............................ Dr. Bill Payable A/c ............ Dr.
bill or To Bills Receivable A/c or To Drawer’s A/c
Dishonour of bill To Bank A/c or (Being our acceptance
To Bill Sent for Collection A/c or cancelled for renewal)
To Endorsee’s A/c
(Being old bill cancelled for
renewal)
2 Interest due on Drawee’s A/c ............................ Dr. Interest A/c .....................Dr
balance amount To Interest A/c ....................... Dr. To Drawer’s A/c
(Being Interest due) (Being Interest due)

3 Receving / Paying Cash / Bank A/c ......................... Dr. Drawer’s A/c ................. Dr.
part payment To Drawee’s A/c To Cash / Bank A/c

(Being part payment received along (Being part payment made
with interest) along with interest)
(Amount of interest will be
added to this amount if interest is
received along with part
payment)
4 Drawing and Bills Receivable A/ .................... Dr. Drawer’s A/c ................. Dr.
acceptance of new To Drawee’s A/c To Bills Payable A/c
bill (Being new bill drawn and (Being new bill accepted for
acceptance received) the balance)
(Amount of interest will be added to
this amount if interest is receivable
along with new bill)

Note : Whenever the bill is dishonoured Drawee’s account is always debited.
Bills Receivable account is credited if the bill is retained.
Bank account is credited if the bill is discounted with the bank.
Bill sent for collection account is credited if the bill is sent to bank for collection.
Endorsee’s account is credited if the bill is endorsed.
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