Question

Briefly explain the purpose and benefits of retiring a bill of exchange to the debtor and the creditor

Answer 1

When a holder receives the amount of a bill before the maturity date on request of the acceptor, it is called retirement of the bill of exchange.

Holder of the bill may give discount for such earlier payment. This discount is termed as ‘rebate’.

Rebate is given by the holder to the acceptor of the bill on account of payment before the due date.

Rebate is a loss for the holder of the bill; so, it is debited in the books of the holder when payment is received.

Cash A/c    Dr.
Rebate A/c Dr.
  To Bil Receivable A/c
(Payment received and rebate allowed for early payment)

Acceptor of the bill gets rebate for the payment made before the due date.

The rebate is a gain for the drawee; so, it is credited in the books of the drawee.

Bill Payable A/c  Dr.
  To Cash A/c
  To Rebate A/c
(Bill paid before the due date and rebate received for early payment)