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Question
Give word / term or phrase for the following statement.
Encashment of the bill before due date.
Solution
Discounting
Explanation: When the holder of a bill needs money before the maturity date, he may present the bill to a bank and get immediate payment on the security of a bill. The bank deducts a certain amount from the face value of the bill and pays the balance. This process is known as discounting.
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RELATED QUESTIONS
Sayali sold goods on credit to Manali of `Rs 40,000. Sayali draws a bill on Manali for 4 months for the amount due. Manali accepted the bill and returned it to Sayali. After a month, Sayali discounted the bill with her bank at 12% p.a.
On the due date, bank informed that the bill is dishonoured and bank paid the noting charges 300. Manali requested Sayali to renew the bill. Sayali agreed on conditions that Manali should pay `Rs 20,000 in cash along with noting charges and accept a new bill for the balance amount with interest at 15% p.a. for 3 months.
These arrangements were carried through. Before the due date Manali was declared insolvent and only 40% of the amount due could be recovered from her private estate as final dividend. Give Journal Entries in the books of Sayali.
Journalise the following transactions in the books of Jwala:
(a) Abdul informed Jwala that John's acceptance endorsed to Abdul for Rs 16,000 has been dishonoured and noting charges amounted to Rs 200.
(b) Sony renews her acceptance to Jwala for Rs 24,000 by paying half the amount of the bill in cash together with interest @10% p.a. on balance due and accepting a fresh bill for 3 months.
(c) Trupti who had given an acceptance to Jwala for Rs 36,000 was declared insolvent and could pay only 40% of the amount due.
(d) Raja's acceptance to Jwala for Rs 6,000 was endorsed to Rani in full settlement of her account for Rs 6,300.
Write True or False
Discounting means encashment of the bill before due date.
