For the purpose of accounting, bills are classified under two heads:
- Bills receivable
- Bills payable
Bills Receivable:
A
bill of exchange is treated as a bill receivable by one who is entitled
to receive the sum due on it. When we draw a bill or receive it by
endorsement from our debtors, it is our bill receivable (B/R) and on
maturity of such bill if it is held up to that time, we shall receive
specified amount from the acceptor.
Bills Payable:
A
bills payable is regarded as bill payable by one who has to pay it on
the due date. When we accept a bill and thereby become liable to pay on
its maturity, it is our bill payable (B/P).
It means the same bill is a bill receivable to one party and a bill payable to the other.
The accounting aspect of a bill of exchange can be divided into following parts:
- When a bill is drawn, accepted and discharged.
- When the drawer discounted it with the bank
- When the drawer sends it for collection to the banker.
- When the drawer endorses it to a third party
- When a bill is dishonored.
- When a bill is renewed for another period of time.
- When a bill is retired.
- When there is an accommodation bill (including the insolvency of one of the parties).