Bills of Exchange Simplified: Your Ultimate Guide

What is a Bill of Exchange? Your IOU Note 💌

Imagine your friend borrows ₹5,000 and promises:
“I’ll pay you back on 15th December” → That’s a Bill of Exchange (BOE)!

Simple Definition:

A written promise to pay a specific amount on a fixed date.

Real-Life Example:
You sell goods to Rohan. Instead of cash, he gives you a signed paper:
“I, Rohan, will pay ₹20,000 on 30th November” → This paper is a BOE!

---

Image 1: BOE Example

---

Key Parties Explained (With Pizza Example 🍕)

Party	Role	Pizza Shop Example
Drawer	Creator (Seller)	You (Pizza Shop Owner)
Drawee	Payer (Buyer)	Customer (Who owes money)
Payee	Money Receiver	You or your Bank

💡 Remember:
Drawer → Gives the bill
Drawee → Pays the bill

---

Image 2: BOE Parties

---

Why Use Bills of Exchange?

1. Security: Legal proof of debt
2. Flexibility: Can be transferred to others
3. Cash Flow: Get money early via banks
4. Common in Business: Used for credit sales

---

3 Simple Journal Entries

(For Your Accounting Records)

Scenario: You sell goods to Raj for ₹50,000. He gives a 60-day BOE.

1. When Sale Happens:

text

Copy

Download

Raj's A/c Dr. 50,000  
     To Sales A/c 50,000  
*(Raj owes you money)*  

2. When Raj Accepts BOE:

text

Copy

Download

Bills Receivable A/c Dr. 50,000  
     To Raj's A/c 50,000  
*(BOE replaces the debt)*  

3. On Due Date (Raj Pays):

text

Copy

Download

Cash A/c Dr. 50,000  
     To Bills Receivable A/c 50,000  
*(You get cash!)*  

---

Image 3: Journal Entry Flow

---

Solved Problems (Step-by-Step)

Problem 1: Basic BOE

Neha buys goods worth ₹80,000 from you on 1st Oct. She gives a 90-day BOE.
Journal Entries:

1. Sale:textCopyDownloadNeha’s A/c Dr. 80,000 To Sales A/c 80,000
2. BOE Accepted:textCopyDownloadBills Receivable A/c Dr. 80,000 To Neha’s A/c 80,000
3. Payment (Due Date = 30th Dec):textCopyDownloadBank A/c Dr. 80,000 To Bills Receivable A/c 80,000

Problem 2: Discounting BOE

You need cash now! Take a ₹1,00,000 BOE (due in 60 days) to bank.
Bank charges 12% discount.

Calculation:

text

Copy

Download

Discount = 1,00,000 × 12% × (60/365) = ₹1,973  
Cash Received = 1,00,000 - 1,973 = ₹98,027  

Journal Entry:

text

Copy

Download

Bank A/c Dr. 98,027  
Discount A/c Dr. 1,973  
     To Bills Receivable A/c 1,00,000  

---

Image 4: Discounting Explained

---

BOE Types Made Simple

Type	Meaning	Example
Demand Bill	Payable immediately	“Pay now!”
Usance Bill	Payable after period	“Pay after 60 days”
Trade Bill	For business transactions	Sale of goods
Inland Bill	Within same country	Mumbai to Delhi

---

5 Exam Tips

1. Drawer = Seller (Who creates BOE)
2. Drawee = Buyer (Who pays)
3. Bills Receivable is an asset for drawer
4. Discount expense when cashing early
5. Dishonored BOE: Reverse original entry

💡 Pro Tip:
Draw this during exams:

text

Copy

Download

Drawer → Creates BOE → Drawee  
Drawee → Pays → Payee  

---

Why This Matters?

• 30% of FYBCom exams cover BOE
• Used in export/import businesses
• Helps manage business cash flow

---

Conclusion

Master Bills of Exchange to:

• Ace accounting exams 📚
• Understand real business transactions 💼
• Build strong commerce knowledge 🚀

---

Got a BOE question?
Ask below! We’ll solve together 👇😊