Endorsement of Bill of Exchange: Meaning and Journal Entries

Endorsement of a bill of exchange sounds like a small topic, but it is one of those areas where students often know the definition and still make mistakes in the journal entry.

The confusion usually comes from one question:

If a bill was received from one person, why is it being given to another person?

Once you answer that, the entries become much easier.

In simple words, endorsement means transferring a bill of exchange to someone else. The person who transfers the bill signs it and gives it to another person, usually to settle a debt.

Think of it like this. You received a bill from your debtor. That bill is an asset for you because you will receive money on its maturity. If you owe money to your creditor, you may transfer this bill to the creditor instead of paying cash immediately. That transfer is endorsement.

What Is Endorsement of a Bill of Exchange?

Endorsement means signing a negotiable instrument for the purpose of transferring it to another person.

In Accountancy, when a bill of exchange is endorsed, the holder of the bill passes it to someone else. After endorsement, the new holder has the right to receive payment from the acceptor on the due date.

Let us keep the language simple:

• The person who transfers the bill is the endorser.
• The person who receives the bill is the endorsee.
• The person who accepted the bill and has to pay on maturity is the drawee or acceptor.

The most important point is that endorsement changes the holder of the bill. It does not change the acceptor’s duty to pay.

Why Is a Bill Endorsed?

A bill may be endorsed when the holder wants to use it to pay a creditor.

Suppose Aarav sold goods to Bhavya and received Bhavya’s acceptance for Rs. 10,000. This bill is Bills Receivable for Aarav.

Now suppose Aarav also owes Rs. 10,000 to Charu.

Instead of paying Charu in cash, Aarav can endorse Bhavya’s accepted bill to Charu. On maturity, Charu will collect the amount from Bhavya.

This is useful because the bill itself becomes a way to settle another liability.

So, endorsement connects three people:

• the acceptor who has to pay
• the endorser who transfers the bill
• the endorsee who receives the bill

The Accounting Logic Behind Endorsement

Before endorsement, the bill is an asset for the holder.

In the holder’s books, it appears as Bills Receivable.

When the holder endorses it to a creditor, the holder is giving away that asset. At the same time, the holder’s liability to the creditor is reduced.

That is why the entry in the endorser’s books is:

Creditor's A/c          Dr.
    To Bills Receivable A/c

The creditor is debited because the liability to the creditor is reduced.

Bills Receivable is credited because the bill is no longer with the endorser.

This is where many students go wrong. They bring the acceptor’s account into the endorsement entry. That is not needed because the acceptor already accepted the bill earlier.

Basic Journal Entry for Endorsement

Let us write the standard entry clearly.

When a bill receivable is endorsed to a creditor:

Creditor's A/c          Dr.
    To Bills Receivable A/c

This entry is passed in the books of the endorser, the person who transfers the bill.

In the books of the drawee or acceptor, no entry is passed at the time of endorsement.

Why?

Because the acceptor’s duty is still the same: pay the bill on maturity. The bill has only changed hands.

Full Solved Example: Bill Endorsed and Honoured

Let us take a clean example.

Aarav sold goods to Bhavya for Rs. 10,000. Bhavya accepted a bill for three months. Aarav endorsed the bill to Charu in full settlement of his debt. On the due date, Bhavya honoured the bill.

We will write the entries in the books of all three people.

In the Books of Aarav

Aarav is the drawer and later the endorser.

When goods are sold to Bhavya:

Bhavya's A/c            Dr.   10,000
    To Sales A/c                     10,000

When Bhavya accepts the bill:

Bills Receivable A/c    Dr.   10,000
    To Bhavya's A/c                  10,000

When Aarav endorses the bill to Charu:

Charu's A/c             Dr.   10,000
    To Bills Receivable A/c          10,000

When Bhavya pays the bill on maturity:

No entry

Why no entry?

Because Aarav no longer holds the bill. Charu holds it.

In the Books of Bhavya

Bhavya is the drawee or acceptor.

When goods are purchased from Aarav:

Purchases A/c           Dr.   10,000
    To Aarav's A/c                   10,000

When Bhavya accepts the bill:

Aarav's A/c             Dr.   10,000
    To Bills Payable A/c             10,000

When Aarav endorses the bill to Charu:

No entry

When Bhavya pays the bill on maturity:

Bills Payable A/c       Dr.   10,000
    To Bank A/c                      10,000

Bhavya does not need a special endorsement entry because Bhavya’s liability was already recorded as Bills Payable.

In the Books of Charu

Charu is the endorsee.

When Charu receives the bill from Aarav:

Bills Receivable A/c    Dr.   10,000
    To Aarav's A/c                   10,000

When Bhavya pays the bill on maturity:

Bank A/c                Dr.   10,000
    To Bills Receivable A/c          10,000

This completes the full journey of the bill.

Why the Endorser Has No Entry on Maturity When the Bill Is Honoured

This point is small, but it saves many marks.

If the bill is honoured, the endorser does not pass any entry on maturity because the endorser is no longer holding the bill. The endorser’s account was already settled when the bill was endorsed.

Only the acceptor and the endorsee are directly involved at maturity.

The acceptor pays.

The endorsee receives.

The endorser stays out of the entry.

What Happens If an Endorsed Bill Is Dishonoured?

Dishonour means the acceptor does not pay the bill on maturity.

When an endorsed bill is dishonoured, the endorsee can recover the amount from the endorser. The endorser can then recover it from the acceptor.

So the liability travels back.

This is why dishonour entries feel more complicated than honour entries.

Let us continue the same example.

Aarav endorsed Bhavya’s bill of Rs. 10,000 to Charu. On maturity, Bhavya failed to pay. Charu paid noting charges of Rs. 100.

Dishonour Entry in the Books of Charu

Charu is the endorsee. Charu is holding the bill. When the bill is dishonoured, Charu must cancel Bills Receivable and recover the total amount from Aarav.

Aarav's A/c             Dr.   10,100
    To Bills Receivable A/c          10,000
    To Bank A/c                        100

Bank is credited because Charu paid the noting charges.

Dishonour Entry in the Books of Aarav

Aarav had endorsed the bill to Charu. When the bill is dishonoured, Aarav becomes liable to Charu and must recover the amount from Bhavya.

Bhavya's A/c            Dr.   10,100
    To Charu's A/c                   10,100

Bhavya is debited because Bhavya is the acceptor who failed to pay.

Charu is credited because Aarav now owes the amount to Charu.

Dishonour Entry in the Books of Bhavya

Bhavya is the acceptor. Since Bhavya failed to pay, Bills Payable must be cancelled and the amount becomes payable again to Aarav.

Bills Payable A/c       Dr.   10,000
Noting Charges A/c      Dr.      100
    To Aarav's A/c                   10,100

Noting charges are an expense for the acceptor because the dishonour happened due to non-payment by the acceptor.

How to Remember the Entries

A bill of exchange can feel confusing because the same bill moves from one person to another.

Use this simple method:

1. First identify who accepted the bill.
2. Then identify who currently holds the bill.
3. Then identify whether the bill is being endorsed, honoured, or dishonoured.
4. If it is endorsed, remove Bills Receivable from the endorser’s books.
5. If it is honoured, record payment by the acceptor and receipt by the holder.
6. If it is dishonoured, cancel the bill and bring back the liability.

Common Mistakes Students Make

The first mistake is passing an entry in the acceptor’s books at the time of endorsement.

The acceptor does not pass an endorsement entry because the acceptor has not made a new transaction at that moment.

The second mistake is writing Bank instead of Bills Receivable in the endorsement entry.

Endorsement is not cash payment. It is transfer of a bill.

The third mistake is passing an honour entry in the endorser’s books.

If the bill has already been endorsed and is honoured, the endorser has no entry on maturity.

The fourth mistake is ignoring noting charges in dishonour questions.

If noting charges are given, they should ultimately be borne by the acceptor.

The fifth mistake is confusing discounting and endorsement.

Discounting means giving the bill to a bank before maturity and receiving cash after deducting discount. Endorsement means transferring the bill to another person, usually a creditor.

Endorsement vs Discounting of a Bill

Students often mix these two because in both cases the bill goes out of the drawer’s hands.

The difference is the purpose.

Point	Endorsement	Discounting
Bill is given to	A creditor or another party	A bank
Main purpose	To settle a liability	To receive cash before maturity
Usual entry	Creditor Dr. To Bills Receivable	Bank Dr., Discount Dr. To Bills Receivable
Discount involved	Usually no discount, unless the question says so	Yes, bank discount is deducted

Once you understand the purpose, the entry becomes obvious.

A Quick Exam-Style Summary

When a bill is endorsed, write:

Creditor's A/c          Dr.
    To Bills Receivable A/c

When the endorsed bill is honoured:

In the endorser’s books:

No entry

In the acceptor’s books:

Bills Payable A/c       Dr.
    To Bank A/c

In the endorsee’s books:

Bank A/c                Dr.
    To Bills Receivable A/c

When the endorsed bill is dishonoured, remember that the endorsee claims from the endorser, and the endorser claims from the acceptor.

Final Thought

Endorsement becomes simple when you stop memorising it as an isolated entry.

See the bill as a claim to receive money. When that claim is transferred, Bills Receivable leaves one person and enters another person’s books. If the acceptor pays, the holder receives the money. If the acceptor does not pay, the liability moves back through the chain.

That is the full story of endorsement.

Once you understand this story, the journal entries stop feeling random.

Frequently Asked Questions

What is endorsement of a bill of exchange?

Endorsement of a bill of exchange means transferring the bill from one holder to another person by signing it. In Accountancy, it usually happens when the holder gives the bill to a creditor to settle a debt.

Who is the endorser?

The endorser is the person who transfers the bill to someone else. For example, if Aarav transfers Bhavya’s accepted bill to Charu, Aarav is the endorser.

Who is the endorsee?

The endorsee is the person who receives the endorsed bill. In the same example, Charu is the endorsee because Charu receives the bill from Aarav.

What is the journal entry for endorsement of a bill?

The basic entry in the books of the endorser is:

Creditor's A/c          Dr.
    To Bills Receivable A/c

The creditor is debited because the liability is reduced, and Bills Receivable is credited because the bill is transferred.

Is there any entry in the acceptor’s books when a bill is endorsed?

No. The acceptor does not pass an entry at the time of endorsement. The acceptor’s liability was already recorded when the bill was accepted. The acceptor passes an entry when the bill is paid or dishonoured.

Does the endorser pass an entry when the endorsed bill is honoured?

No. If the bill is honoured, the endorser does not pass any entry on maturity because the bill is no longer held by the endorser.

What happens if an endorsed bill is dishonoured?

If an endorsed bill is dishonoured, the endorsee can recover the amount from the endorser. The endorser can then recover it from the acceptor. If noting charges are paid, they are ultimately borne by the acceptor.

What is the difference between endorsement and discounting?

In endorsement, the bill is transferred to another person, usually a creditor. In discounting, the bill is given to a bank before maturity to receive cash after deduction of discount.