Bills of Exchange: NBSE Class 10 Book Keeping

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Get summaries, questions, answers, solutions, notes, extras, theories, practicles, PDF, and guide of Chapter 4 Bills of Exchange, NBSE Class 10 Book Keeping (BK) textbook, which is part of the syllabus of students studying under Nagaland Board. These solutions, however, should only be treated as references and can be modified/changed.

Summary

Bills of exchange and promissory notes are important in business. They help people buy and sell goods on credit safely. A bill of exchange is a written order. It tells one person to pay a certain amount to another person after a set time. This helps the seller feel sure about getting paid later. The bill must be clear about the date, amount, and who will pay. It needs a signature too. There are three main people involved. The drawer writes the bill. The drawee accepts it. The payee gets the money.

A promissory note works differently. It is a promise to pay a certain amount. The maker promises to pay the payee. It does not need acceptance like a bill of exchange. Both bills and promissory notes have their own benefits. They make buying and selling easier. They also help people plan their finances better.

When someone receives a bill, they can use it in different ways. They can keep it until the payment date. They can also give it to someone else as payment. This is called endorsement. Another option is to get cash from a bank before the due date. This is called discounting. Banks charge a fee for this service. People can also send bills to banks for collection. The bank collects the payment on their behalf.

The chapter explains how to record these transactions. It gives examples of journal entries. These show how each party writes down what happens. Entries differ based on whether the bill is kept, endorsed, discounted, or sent for collection. Each situation has its own rules.

Days of grace are added to calculate the due date. This means extra days after the set period. If the due date falls on a holiday, it moves to the previous working day. Bills are legal documents. If someone does not pay, the holder can take action.

The text lists differences between bills of exchange and promissory notes. It talks about parties involved in both. It also discusses acceptance, stamps, and noting. Noting is done if a bill is not paid. The chapter provides practice questions. These help understand the concepts better. Examples show calculations for due dates and discounts. They explain how to handle different scenarios involving bills and notes.

Textbook solutions

Multiple Choice Questions (MCQs)

1. A bill of exchange is

a. A promise to pay
b. A request to pay
c. An order to pay
d. None of these

Answer : c. An order to pay

2. A promissory note is made by a

a. debtor
b. supplier
c. creditor
d. customer

Answer : a. debtor

3. A bill of exchange has

a. One party
b. Two parties
c. Three parties
d. Four parties

Answer : c. Three parties

4. On maturity, a bill is met by its

a. drawer
b. drawee
c. payee
d. endorsee

Answer : b. drawee

5. The person to whom the amount of a bill is payable is called the

a. Drawer
b. Payee
c. Drawee
d. Endorsee

Answer : d. Endorsee

Very Short Answer Type Questions

1. What is a bill of exchange?

Answer: A bill of exchange is an instrument in writing, 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.

2. What is a promissory note?

Answer: A promissory note is an instrument in writing (not being a banknote or 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.

3. What are the parties to a bill of exchange?

Answer: The parties to a bill of exchange are:

i. Maker: The debtor who promises to make the payment is the maker. The note must be signed by its maker.
ii. Payee: The person who receives the payment of the promissory note is the payee. In the case of promissory notes, the payee may be the person who has been addressed in it or is its holder.

4. What is the period for which discount is calculated while discounting a bill?

Answer: The bank charge discount for the period it has advanced the loan.

Short Answer Type Questions

1. Enumerate the characteristics of a bill of exchange.

Answer: The characteristics of a bill of exchange are:

i. An unconditional order.
ii. Written document.
iii. Order to pay specified amount.
iv. Payment on a specified date.
v. Signed by the drawer.
vi. Payment to drawer or endorsee.

2. What do you mean by “discounting” and “endorsement” in bill of exchange?

Answer: Discounting of the bill means encashing the bill or borrowing from the bank on the security of the bill. The drawer transfers the possession and also the ownership of the bill. The bank charges certain interest here, known as a discount for the period, it has advanced the amount. On the due date, the bank will present the bill to the drawer and receive the payment.

According to trade practice, the drawer may accept the bill drawn by his creditor. Instead of accepting a fresh bill, the drawer may endorse (transfer) his Bills Receivable. The endorsee will be the owner of the bill and he will realise the payment of the bill on the due date from the drawee.

Long Answer Type Questions

1. What are promissory notes? Prepare a specimen promissory note.

Answer: A promissory note is an instrument in writing (not being a banknote or 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.

Specimen promissory note:

2. What are the differences between promissory note and bill of exchange? Explain.

Answer: The differences between promissory note and bill of exchange are:

Points of difference	Bills of exchange	Promissory notes
Parties	There are three parties in the bills of exchange, i.e., drawer, drawee and payee.	There are two parties in promissory notes, i.e., maker and payee.
Drawer	It is drawn by the creditor.	It is made by the debtor.
Acceptance	Acceptance is a must.	Acceptance is not required.
Nature	It is an order to the debtor to make a payment.	It is a promise to make payment.
Copies	In the case of foreign bills, three sets are prepared. In the case of inland bills, only one copy is prepared.	Only one copy is prepared.
Noting	In the case of dishonour of the bills, it is noted and protested.	Promissory notes cannot be noted.

3. Enumerate the various advantages of a bill of exchange.

Answer: The various advantages of a bill of exchange are:

i. Evidence of debt: Bill is accepted by the debtor. Bills of exchange in this way serve as evidence.
ii. Reminder not required: Bill is payable after the expiry of a certain period on a specific date. Therefore, it is not necessary to remind for the payment again.
iii. Economy of money in circulation: Bills of exchange is a form of credit money. Bill is used and accepted as a form of payment by traders, which is economical.
iv. Legal document: Bills of exchange is a legally valid document in the eyes of the law.
v. Convenient purchasing: The use of bills of exchange has facilitated credit purchases.
vi. Benefits of discounting: In case the drawer is in the immediate need of funds, she/he can get the bill discounted with the bank and receive the funds even before the due date.

4. Explain the following terms:

a. Drawer
b. Drawee
c. Endorsee
d. Payee
e. Holder

Answer: a. The drawer is the party who draws the bill. The drawer must be the creditor. She/he may either be a seller of goods or lender of money.

b. The drawee is the person or the party who has to make the payment, or who accepts to make the payment. In case of withdrawal from the bank, the drawee is the ‘bank’.

c. An endorsee is a person in whose favour a bill of exchange is endorsed after the endorsement of a bill.

d. The payee is the person who receives the payment. In case of bills of exchange, the drawer will be the payee of the bill, if she/he retains the bill till the date of maturity and realises its payment.

e. In bills of exchange, a holder is a person who is in possession of a bill.

5. What are days of grace? Are days of grace allowed on all bills?

Answer: Days of grace are three additional days that are compulsorily added while calculating the due date of a bill. Initially, 3 days of grace were allowed to the drawee as a matter of sympathy and kindness, but it became a practice.

Yes, days of grace allowed on all bills.

6. What do you understand by:

a. Acceptance of bill
b. Payment of bill

Answer: a. The bill must specify the name of the drawee. It must be accepted by the drawee, otherwise, it will not be a bill of exchange. Before the acceptance the bill is known as draft, meaning rough sketch. The draft must be accepted by the drawee to make it a bill of exchange.

b. On the due date of a bill, the drawer will send the bill to the drawee, so the Bills Receivable account will be credited and Cash account will be debited. This is called payment of a bill.

Practical Questions

Questions

Question 1. Calculate the due dates of the bills in the following cases:

Date of Bills	Period
February 1, 2009	2 months
January 31, 2009	3 months
September 30, 2009	2 months
September 30, 2009	3 months
December 29, 2009	2 months
December 31, 2009	2 months
July 15, 2009	30 days
January 27, 2008	1 month

Hint: 2008 was a leap year.

Question 2. On September 30, 2011, Atso draws a bill of ₹ 1,500 on Nise. Nise accepts this bill immediately and returns it to Atso. The bill is due for 3 months after the date. Prepare the journal entries.

Question 3. Ikali draws a bill of ₹ 1,000 on John on August 5. The bill is payable after 6 months. The bill was accepted by the drawee on presentation and met on the due date. Show the transactions on the books of both the parties.

Question 4. On January 21, 2011, Mr. Ronaldo draws a bill for ₹ 2,000 on Mr. Messi at 3 months, which he endorses over to Mr. Kane. The bill is met on the due date. Prepare the journal entries in the books of Mr. Ronaldo and Mr. Messi.

Question 5. On January 15, 2006, Ihuto sold goods to Kavishe for ₹ 6,000. On the same day, Kavishe accepted a bill drawn upon her by Ihuto for 3 months for ₹ 6,000. Ihuto discounted the bill on March 18, 2006 at 12% pa at her bank and Kavishe met the bill at maturity. Make journal entries in the book of both parties.

Question 6. On April 1, Sachin sells goods to Virat valued at ₹ 2,000. Virat accepts the bill of exchange for the amount at 3 months. On May 1, Sachin endorses it to Hardik in settlement of a debt of an equal amount. On the due date, the bill was honoured by payment. You are required to show entries in the books of Sachin and Virat.

Question 7. Hoishike draws a bill on Kevali for ₹ 2,000. On return of the acceptance by Kevali, Hoishike discounts it with his bankers for ₹ 950. On the due date the bill is honoured. Pass entries in the books of Hoishike and Kevali.

Question 8. Bruce draws a bill on Tom for ₹ 3,000 dated January 1, at 4 months. The bill is accepted on the same date and forthwith discounted by Tom with his bankers at 5% p.a. The bill is duly met at maturity. Show journal entries in the books of all parties.

Question 9. On January 1, Otoka sells good to Krosakhol for ₹ 15,000. On that date, Krosakhol accepted a bill drawn upon him by Otoka at 2 months for ₹ 15,000. Otoka retains it till due date and on the due date returns the bill to the banker for collection. In due course, Otoka receives the information from the bank that the bill has been duly met. Prepare the journal entries in the books of Otoka and Krosakhol.

Question 10. Akum received an acceptance for ₹ 6,000 from Nise on July 1, 2012, at 3 months. Akum got this bill discounted at 6% p.a. at his bank. On the due date Nise paid the required amount. Provide the journal entries in the books of both Akum and Nise.

Question 11. On July 15, 2010, Anushka sold goods to Deepika for ₹ 3,000 and sent her a bill of 3 months for the amount. Deepika accepted the bill and returned the same to Anushka. On October 1, 2011, Anushka purchased goods from Alia for ₹ 4,000 and endorsed Deepika’s acceptance to Alia along with a cheque for ₹ 800, ₹ 200 to be taken as discount. On maturity, the bill was duly paid. Pass journal entries in the books of Anushka and Deepika.

Question 12. Vikeyno owed ₹ 5,100 to Zhenito. On January 15, 2008, she accepted a bill of ₹ 5,000 for 2 months drawn by Zhenito in full settlement of his debt. On January 18, 2008, Zhenito presented the bill to his creditor Neiphu. The bill was duly met on the date of maturity. Pass journal entries in the books of Vikeyno and Zhenito.

Question 13. On January 1, Akash sold goods worth ₹ 6,000 to Alex and drew a bill to Alex for 2 months for the amount. Alex accepted the bill and returned it to Akash. The bill was duly honoured at maturity. Pass the entries in the books of both the parties.

Question 14. A bill of ₹ 1,000 was drawn by Jerry on George and accepted by the latter, payable at the State Bank of India. Assuming that George meets the bill of the due date, show the journal entries that will be passed in the books of Jerry under each of the following circumstances:

a. The bill is retained by Jerry till the due date
b. The bill is discounted with the bankers for ₹ 957
c. The bill is endorsed by George in the settlement of debt of ₹ 1,100
d. The bill is sent to bankers for collection.

Question 15. A bill of ₹ 5,500 is drawn by Roy on Jim and accepted by the latter payable at the UCO Bank. Show the journal entries that will be passed in the books of both parties under each of the following circumstances:

a. The bill is retained by Roy till the due date
b. The bill is discounted with the bankers for ₹ 4,500
c. The bill endorsed to his creditor Michael in settlement of his debt for ₹ 4,200
d. The bill is sent to bankers for collection.

Solutions

Extras

Additional questions and answers

1. Define bills of exchange?

Answer : A bill of exchange is defined as 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.

Q. What is meant by the term ‘bill at sight’?

Answer : A bill at sight refers to a bill of exchange that is payable immediately upon being presented to the drawee.

Q. What are days of grace in a bill of exchange?

Answer : Days of grace refer to the additional three days allowed to the drawee for making payment of the bill beyond its maturity date.

Q. Define due date in a bill of exchange?

Answer : The due date in a bill of exchange is the date when the payment becomes legally due after including the days of grace.

Q. Who is the drawer in a bill of exchange?

Answer : The drawer in a bill of exchange is the party who draws the bill. The drawer must be the creditor and may either be a seller of goods or a lender of money. The person who has to realize the payment will be the drawer, hence the drawer is the person who draws the money.

Q. Who is the drawee in a bill of exchange?

Answer : The drawee in a bill of exchange is the person or the party who has to make the payment or who accepts to make the payment. In case of bills of exchange, the person who accepts the bill drawn by the creditor is known as the drawee. A purchaser of goods on credit, a borrower, or a debtor who accepts the draft drawn by the creditor is known as the drawee.

Q. Who can become the payee in a bill of exchange?

Answer : The payee in a bill of exchange is the person who receives the payment. If the drawer retains the bill till the date of maturity and realizes its payment, the drawer will be the payee of the bill. The bank may also be the payee of the bill if it receives the payment in case the bill has been discounted. The endorsee of the bill may also become the payee of the bill if she/he receives the payment of the bill.

Q. What is a draft in relation to a bill of exchange?

Answer : A draft in relation to a bill of exchange refers to the initial document written by the drawer before it is accepted by the drawee. Before acceptance, the bill is known as a draft, meaning a rough sketch. The draft must be accepted by the drawee to make it a bill of exchange.

Q. What is meant by ‘value received’ in a bill of exchange?

Answer : ‘Value received’ in a bill of exchange means that the drawee has already received the value for which he has been accepting the bill. Bills are drawn against certain valid consideration, where consideration here means in exchange or ‘something for something’. Bills are drawn on debtors who have already received the value earlier in the form of certain goods, assets, or cash.

Q. What is a promissory note?

Answer : A promissory note is an instrument in writing (not being a bank note or 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.

Q. Name the parties involved in a promissory note.

Answer : The parties involved in a promissory note are:

• Maker – The debtor who promises to make the payment.
• Payee – The person who receives the payment of the promissory note.

Q. Who can endorse a bill of exchange?

Answer : The drawer can endorse a bill of exchange in favor of his creditor. The endorsee, who receives the bill through endorsement, will become the owner of the bill and realize the payment of the bill on the due date from the drawee.

Q. Enumerate the main elements of a bill of exchange.

Answer : The main elements of a bill of exchange are:

• Place and date of payment: The date of writing the bill must be clearly mentioned because the due date is calculated based on this date, and the place of payment should also be specified.
• Stamp: Bills of exchange bear stamps or are drafted on stamped paper of the court. Stamps are fixed according to the amount of the bill, making the drawee legally liable for the payment.
• Days of grace: Three days of grace are compulsorily added while calculating the due date of the bill.
• Due date or date of maturity: It is the specific date on which the payment of the bill has to be made.
• Amount: The bill must be drawn for a certain specified amount, written correctly in both words and figures.
• Name of the drawee and his acceptance: The bill must specify the name of the drawee and must be accepted by him; otherwise, it is not considered a bill of exchange.

Q. Explain briefly the advantages of bills of exchange.

Answer : The advantages of bills of exchange are:

• Evidence of debt: A bill of exchange serves as evidence of debt since it is accepted by the debtor.
• Reminder not required: The bill is payable after the expiry of a certain period on a specific date, so there is no need to remind the debtor for payment.
• Economy of money in circulation: Bills of exchange act as credit money, reducing the use of cash in transactions.
• Legal document: It is a legally valid document, allowing legal action against the drawee if they fail to make the payment.
• Convenient purchasing: It facilitates credit purchases, ensuring the seller that payment will be made on a specified date.
• Benefits of discounting: If the drawer needs funds immediately, they can get the bill discounted with the bank and receive the funds before the due date.
• Benefits of endorsement: The drawer can endorse the bill in favor of their creditor to repay their debt through bills of exchange.
• Financial planning: The drawer, assured of payment on a specified date, can plan their finances accordingly.

Q. What is meant by the discounting of bills of exchange?

Answer : Discounting of bills of exchange means encashing the bill or borrowing from the bank on the security of the bill. The drawer transfers the possession and ownership of the bill to the bank, which charges interest, known as a discount, for the period it advances the amount. On the due date, the bank presents the bill to the drawee and receives the payment.

Q. Why is acceptance necessary for a bill of exchange?

Answer : Acceptance is necessary for a bill of exchange because, without acceptance by the drawee, it does not become a legally valid bill of exchange. Before acceptance, it is merely a draft or rough sketch. Only after the drawee accepts the draft does it become a bill of exchange.

Q. How is the due date calculated in a bill of exchange?

Answer : The due date or date of maturity is the specific date on which the payment of the bill has to be made. It is calculated by adding three days of grace to the expiry of the specified period mentioned in the bill. For example, if a bill is drawn on April 1, payable after 3 months, its due date will be July 4 (including 3 days of grace). If the due date falls on a Sunday or a public holiday, the due date will be a day earlier.

Q. Why is a stamp required on a bill of exchange?

Answer : A stamp is required on a bill of exchange because it makes the drawee legally liable for the payment and also makes the bill a legal document. Stamps are fixed according to the amount of the bill. However, stamps are not fixed on bills that are payable “on demand.”

Q. When and how is a bill of exchange sent for collection?

Answer : A bill of exchange is sent for collection when the drawer sends the bill to the bank for collection before the due date. The bank keeps the bill until the date of maturity, realises its payment, and credits the amount in the drawer’s account. The bank charges a certain commission for this service as part of its agency services.

Q. Briefly explain the role of the payee in a bill of exchange.

Answer : The role of the payee in a bill of exchange is to receive the payment of the bill. The payee may be the drawer if they retain the bill till the date of maturity and realise its payment. The payee can also be the bank if the bill has been discounted or sent for collection, or the endorsee if the bill has been endorsed to them. The term “payee” is formed from the word “to pay,” meaning the person or party to whom the payment is made.

Q. Explain the accounting treatment in the books of the drawer and drawee when a bill is honoured.

Answer : When a bill is honoured, the drawer debits the Cash Account and credits the Bills Receivable Account because the payment of the bill is received. The drawee, on the other hand, debits the Bills Payable Account and credits the Cash Account because the payment of the bill is made. These transactions are recorded in the books of both the drawer and the drawee.

Q. Differentiate between ‘Bills Receivable’ and ‘Bills Payable’ with respect to bills of exchange.

Answer : ‘Bills Receivable’ refers to the bill whose payment has to be received. It is generally received by the drawer, who debits or credits the Bills Receivable Account in their books. The endorsee will also use the term ‘Bills Receivable’ in their books if they receive the payment of the bill. On the other hand, ‘Bills Payable’ refers to the bills whose payment has to be made. The payment is always made by the drawee, who uses the term ‘Bills Payable’ in their books of accounts. They may credit or debit the Bills Payable account but will never use the term ‘Bills Receivable’.

Q. How are bills of exchange useful for financial planning?

Answer : Bills of exchange are useful for financial planning because the drawer, being ensured of the payment on a certain specified date, can make her/his financial plans accordingly.

Q. Explain the role of an endorsee in bills of exchange.

Answer : The role of an endorsee in bills of exchange is to receive the payment of the bill on the due date from the drawee. The drawer may endorse (transfer) the bill in favor of the endorsee, who then becomes the owner of the bill. The endorsee is concerned with receiving the bill receivable from the drawer and receiving the payment of the bill from the drawee. If the bill is endorsed, the endorsee will pass entries for receiving the bill and realizing its payment.

Q. Explain the journal entries passed when a bill is discounted with the bank.

Answer : When a bill is discounted with the bank, the following journal entries are passed in the books of the drawer:

• Bank A/c Dr.
  Discounting charges A/c Dr.
  To Bills Receivable A/c
  (Being the bill receivable from the drawee discounted at the bank and banker’s discounting charge).

The drawee is not concerned with the discounting, so no entry is made in the books of the drawee.

Q. Enumerate and explain the features or characteristics of bills of exchange.

Answer : The features or characteristics of bills of exchange are as follows:

• An unconditional order : It is an order by the drawer (creditor) to the drawee (debtor) without any condition. It becomes binding upon the acceptor of the bill to carry out the order.
• Written document : Bills of exchange must be in writing. It is a formal and authentic source of payment, so it must be in writing and can be produced in court as evidence in certain cases.
• Order to pay specified amount : It is an unconditional order to make payment of a certain specified amount. The amount must be specified in both figures and words, such as “₹ 500 (Rupees five hundred only).”
• Payment on specified date : The amount is payable after the expiry of a certain period, and the exact due date (date of maturity) is calculated accordingly. For example, if a bill is drawn on January 1 and is payable after 3 months, its due date will be April 4 (including 3 days of grace).
• Signed by the drawer : The bill must be signed by its maker. Since it is an order, the person ordering the payment must sign it. This also enables the drawee to understand to whom the payment has to be made. Without a signature, it will not be considered a legal document.
• Payment to drawer or endorsee : The bill is drawn by the creditor (drawer), who will realize the payment of the bill on its due date. The drawer may endorse the bill to another party, in which case the endorsee will realize the payment. The payment may also be realized by the bank if the bill has been sent for collection or discounted with the bank.

Q. Explain clearly the parties involved in a bill of exchange, stating their roles and responsibilities.

Answer : The parties involved in a bill of exchange are as follows:

• Drawer : The drawer is the party who draws the bill. The drawer must be the creditor. She/he may either be a seller of goods or lender of money. The party who has to realize the payment will be the drawer, hence the drawer is the person who draws the money. In case of bills of exchange, the person who draws the bill for receiving a certain amount from the drawee is the ‘drawer’. The drawer writes the bill in the form of a draft initially, which becomes a bill of exchange after its acceptance.
• Drawee : The drawee is the person or the party who has to make the payment, or who accepts to make the payment. In case of bills of exchange, the person who accepts the bill, drawn by the creditor, is the ‘drawee’. A purchaser of goods on credit, a borrower, or a debtor who accepts the draft drawn by the creditor is known as the ‘drawee’. The initial step is to write a draft. This draft becomes a bill of exchange after its acceptance. The drawee must accept the bill for it to become valid.
• Payee : The payee is the person who receives the payment. In case of bills of exchange, the drawer will be the payee of the bill if she/he retains the bill till the date of maturity and realizes its payment. The bank may also be the payee of the bill if it receives the payment (in case the bill has been discounted). The endorsee of the bill may also become the payee of the bill if she/he receives the payment of the bill. The term ‘payee’ is formed from the word ‘to pay’; therefore, the payee is the person/party to whom the payment is made out.

28. What are promissory notes? Discuss their special features clearly.

Answer : A promissory note is an instrument in writing (not being a bank note or 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. Promissory note is a promise to make the payment of a certain specified amount to the creditor on demand or after the expiry of a certain period.

The special features of promissory notes are:

• It is a promise.
• It is a document in writing.
• It is a promise to pay a specified amount.
• Payment may be made on demand or after the expiry of a certain period.
• The promise to make the payment is unconditional.

Additional MCQs

1. According to the Indian Negotiable Instrument Act, 1881, a bill of exchange is:

A. A promise to pay
B. A conditional order
C. An unconditional order
D. A cheque

Answer: C. An unconditional order

Q. Who draws a bill of exchange?

A. Drawee
B. Drawer
C. Payee
D. Endorsee

Answer: B. Drawer

Q. The party who accepts a bill of exchange is known as:

A. Drawer
B. Drawee
C. Payee
D. Endorsee

Answer: B. Drawee

Q. A draft becomes a bill of exchange after it is:

A. Endorsed
B. Accepted
C. Noted
D. Discounted

Answer: B. Accepted

Q. Which characteristic is essential for a bill of exchange?

A. Conditional order
B. Verbal promise
C. Unconditional order
D. Draft copy

Answer: C. Unconditional order

Q. Which detail must be clearly mentioned on a bill to calculate its due date?

A. Drawee’s name
B. Stamp duty
C. Place and date of payment
D. Endorsee’s signature

Answer: C. Place and date of payment

Q. How many days of grace are added to the specified period in a bill of exchange?

A. 1 day
B. 2 days
C. 3 days
D. 4 days

Answer: C. 3 days

Q. A bill payable on its presentation is known as a:

A. Bill after date
B. Bill at sight
C. Bank draft
D. Promissory note

Answer: B. Bill at sight

Q. The term “value received” on a bill indicates that:

A. Goods are sold
B. Valid consideration is received
C. Payment is pending
D. Discount is applied

Answer: B. Valid consideration is received

Q. A promissory note is an instrument that contains an unconditional undertaking to:

A. Order payment
B. Promise to pay
C. Request payment
D. Negotiate funds

Answer: B. Promise to pay

Q. Which parties are involved in a promissory note?

A. Drawer and drawee
B. Maker and payee
C. Drawer and endorsee
D. Drawee and payee

Answer: B. Maker and payee

Q. In bills of exchange, acceptance is:

A. Not required
B. Optional
C. Mandatory
D. Discretionary

Answer: C. Mandatory

Q. How many parties are involved in a bill of exchange?

A. One
B. Two
C. Three
D. Four

Answer: C. Three

Q. How many parties are involved in a promissory note?

A. One
B. Two
C. Three
D. Four

Answer: B. Two

Q. Bills of exchange are considered an order, whereas promissory notes are a:

A. Request
B. Promise
C. Directive
D. Demand

Answer: B. Promise

Q. Which instrument can be noted and protested in case of dishonour?

A. Promissory note
B. Bank draft
C. Bill of exchange
D. Endorsed draft

Answer: C. Bill of exchange

Q. Discounting of a bill means:

A. Selling on credit
B. Borrowing on security
C. Endorsing to a creditor
D. Noting for protest

Answer: B. Borrowing on security

Q. The journal entry for discounting a bill is made in the books of the:

A. Drawee
B. Drawer
C. Payee
D. Endorsee

Answer: B. Drawer

Q. Endorsement of a bill transfers it to the:

A. Drawee
B. Drawer
C. Endorsee
D. Maker

Answer: C. Endorsee

Q. One advantage of a bill of exchange is that it serves as:

A. Legal evidence
B. Cash substitute
C. Immediate cash
D. Conditional promise

Answer: A. Legal evidence

Q. Bills of exchange promote economy because they:

A. Increase circulation
B. Use credit money
C. Require cash
D. Incur interest

Answer: B. Use credit money

Q. A bill of exchange is a legal document that allows a suit to be filed against the:

A. Drawer
B. Drawee
C. Payee
D. Endorsee

Answer: B. Drawee

Q. In the drawer’s books, a bill is recorded as:

A. Bills Payable
B. Sales
C. Bills Receivable
D. Cash

Answer: C. Bills Receivable

Q. In the drawee’s books, a bill is recorded as:

A. Bills Receivable
B. Bills Payable
C. Purchases
D. Sales

Answer: B. Bills Payable

Q. For a term bill, stamps are fixed according to the:

A. Drawer’s name
B. Bill amount
C. Payment date
D. Drawee’s address

Answer: B. Bill amount

Q. If a bill’s due date falls on a holiday, it is adjusted to:

A. Next day
B. Same day
C. One day earlier
D. One day later

Answer: C. One day earlier

Q. A bank draft differs from a promissory note because it ensures:

A. Deferred payment
B. Immediate payment
C. Conditional payment
D. Postdated payment

Answer: B. Immediate payment

Q. Which of the following is not a party to a bill of exchange?

A. Drawer
B. Drawee
C. Maker
D. Payee

Answer: C. Maker

Q. Stamps are not fixed on bills whose payment is made:

A. After date
B. On demand
C. At sight
D. With discount

Answer: B. On demand

26. The stamps on a bill are used to:

A. Validate payment
B. Fix the amount
C. Ensure legal liability
D. Record the drawer

Answer: C. Ensure legal liability