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Welcome back! In my last post I taught you 👩🏫how to record transaction for renewal of bill of exchange. Today I’m gonna teach you 👩🏫about retiring the bill under rebate. Let's go!😀
You can find in the above chart the pink colour entry is for retiring the bill under rebate in the books of Drawer as well as Drawee.
You can observe 👩🏫drawer return the bill receivable and received the payment, allowed the rebate as well. And Drawee receives back the bill payable and paid the payment and gained the rebate.
Now let me explain👩🏫 this with the example problem.
EXPLANATION: Let me👩🏫 first explain the above problem. Here you can see X is the Drawee or acceptor of the bill and Y is the Drawer or holder of the bill. But before we begin recording our entries first you have to deduct the trade discount mention in the question. As we know trade discount is not recorded in the books of account like we record cash discount or rebate which we are going to record in this problem, so amount of the bill would be Rs. 2,700 after deducting trade discount (i.e.,3,000 – 10%).
2nd entry for bill drawn on X
3rd entry for receiving payment as the bill is retired and rebate is allowed on the bill.
SOLUTION: here’s how the journal entries will be recorded in the books of Drawer Y.
2nd entry as the bill is accepted for 4 months
3rd entry for paying the payment as the bill got retired and rebate on bill is gained.
Inshallah next time, 😃I will teach you 👩🏫about Accommodation of bill. Till then take care.🤗
If you find this Article useful, 💁♀️please mark your reaction below👇 and don’t forget to share with others 🤗who is in need, because sharing knowledge means gaining knowledge, also subscribe to my newsletters 📨with your email id to get latest updates in your inbox. 📪If you have any queries regarding this article please feel free to use comment section 👇or just send me an e-mail, 📧I would love to hear from you. 😄
What do we mean by retiring a bill under rebate?
Well sometimes the Drawee or an acceptor of the bill desires to make its payment before its due date. Then, he will do so, if he is given some rebate or discount by the holder of the bill on earlier payment. Hence, if a bill is paid before its due date and some rebate or discount is allowed by the Drawer or the holder to the acceptor, it is said to be retired under rebate.Now let’s take a look at our chart of important journal entries there is only one extra entry for retiring the bill under rebate.
You can observe 👩🏫drawer return the bill receivable and received the payment, allowed the rebate as well. And Drawee receives back the bill payable and paid the payment and gained the rebate.
Now let me explain👩🏫 this with the example problem.
EXAMPLE PROBLEM:
1. On 1st January, 2016, X buys goods from Y priced at Rs 3,000 subject to a deduction of 10% trade discount. X accepts a bill for four months for the amount. On 4th February, 2016, X retires his acceptance under a rebate of 12% p.a. journalise the above transactions in the books of X and Y.EXPLANATION: Let me👩🏫 first explain the above problem. Here you can see X is the Drawee or acceptor of the bill and Y is the Drawer or holder of the bill. But before we begin recording our entries first you have to deduct the trade discount mention in the question. As we know trade discount is not recorded in the books of account like we record cash discount or rebate which we are going to record in this problem, so amount of the bill would be Rs. 2,700 after deducting trade discount (i.e.,3,000 – 10%).
In the books of Drawer Y:
1st entry will be for goods are sold to X on credit.2nd entry for bill drawn on X
3rd entry for receiving payment as the bill is retired and rebate is allowed on the bill.
SOLUTION: here’s how the journal entries will be recorded in the books of Drawer Y.
Next in the books of Drawee X
1st entry for purchasing goods on credit from Y2nd entry as the bill is accepted for 4 months
3rd entry for paying the payment as the bill got retired and rebate on bill is gained.
I hope you have understood this lesson👩🏫. Now let me give you one ☝️(DIY) for your practice ✍let’s see how you will do!🤗 Well I have shared my knowledge with you let’s see did you gained that knowledge?
DO IT YOURSELF (DIY):
1. On January 1, 2018 John accepted a bill, drawn on her by Sam for Rs 5,000 payable 4 months , against his dues. Having surplus funds, John paid off the bill on 4th February and was allowed a rebate of 6% p.a. Show journal entries in the books of John and Sam.Inshallah next time, 😃I will teach you 👩🏫about Accommodation of bill. Till then take care.🤗
If you find this Article useful, 💁♀️please mark your reaction below👇 and don’t forget to share with others 🤗who is in need, because sharing knowledge means gaining knowledge, also subscribe to my newsletters 📨with your email id to get latest updates in your inbox. 📪If you have any queries regarding this article please feel free to use comment section 👇or just send me an e-mail, 📧I would love to hear from you. 😄
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