Question

Vishal sold goods for Rs. 7,000 to Manju on 5th January 2016 and drew upon her bills of exchange payable after 2 months. Manju accepted Vishal's draft and handed over the same to Vishal after acceptance. Vishal immediately discounted the bill with his bank at 12% per annum. On the due date, Manju met her acceptance.

Journal Entries:

In the books of Vishal:

  • 5th January 2016:

    • Manju's Account Dr 7000
      • To Sales Account 7000 (Being goods sold to Manju on credit)
    • Bills Receivable Account Dr 7000
      • To Manju's Account 7000 (Being bill of exchange drawn on Manju)
  • 5th January 2016:

    • Bank Account Dr 7023.33
      • Discount Received Account 23.33
      • To Bills Receivable Account 7000 (Being bill discounted with the bank @12% per annum)
  • Due Date:

    • Cash Account Dr 7000
      • To Manju's Account 7000 (Being Manju met her acceptance)

In the books of Manju:

  • 5th January 2016:

    • Vishal's Account Dr 7000
      • To Purchase Account 7000 (Being goods purchased from Vishal on credit)
  • Due Date:

    • Manju's Account Dr 7000
      • To Cash Account 7000 (Being payment made to Vishal on due date)

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Answer

In the Books of Vishal

JOURNAL

Date Particulars L.F. Dr. Amount Cr. Amount
2016
Jan 5 Manju's Account Dr. 7,000
      To Sales Account 7,000
(Goods sold to Manju)
Jan 5 Bills Receivable Account Dr. 7,000
      To Manju's Account 7,000
(Acceptance received)
Jan 5 Bank Account Dr. 6,860
Discount Charges Account Dr. 140
      To Bills Receivable Account 7,000
(Bill discounted with the bank @ 12% per annum)

Working Note:

  • Calculation of Discount:

    $$ 7,000 \times \frac{12}{100} \times \frac{2}{12} = 140 \text{ Rs.} $$

In the Books of Manju

JOURNAL

Date Particulars L.F. Dr. Amount Cr. Amount
2016
Jan 5 Purchases Account Dr. 7,000
      To Vishal's Account 7,000
(Goods purchased from Vishal)
Jan 5 Vishal's Account Dr. 7,000
      To Bills Payable Account 7,000
(Acceptance given)
Due Date Bills Payable Account Dr. 7,000
      To Bank Account 7,000
(Bill paid on maturity)

Explanation:

  • On January 5, 2016, Vishal sold goods worth Rs. 7,000 to Manju on credit and drew a bill of exchange payable after 2 months.
  • Manju accepted the draft, and Vishal discounted the bill with his bank at a 12% per annum rate.
  • The discount calculated was Rs. 140, hence the bank credited Rs. 6,860 to Vishal's account.
  • On reaching the due date, Manju honored her acceptance by paying off the bill.

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