Journal Entries for Drawing, Accepting, and Paying a Bill of Exchange

Bills of exchange become much easier when you stop seeing the entries as separate lines to memorise.

There is a simple story behind them.

One person sold goods on credit. The other person owes money. Instead of leaving the credit balance open, they use a bill of exchange. The seller draws the bill. The buyer accepts it. Later, the buyer pays it.

That is the whole path:

Sale on credit -> bill accepted -> bill paid

Once you understand this path, the journal entries become logical in both books: the drawer’s books and the drawee’s books.

This guide focuses on the most basic and important case: the bill is drawn, accepted, kept by the drawer, and paid on maturity. If this foundation is clear, later cases like discounting, endorsement, renewal, retirement, and dishonour become much easier.

The Basic Story Behind the Entry

Suppose A sells goods to B for Rs. 20,000 on credit.

At this stage, A has to receive money from B. B has to pay money to A.

So in A’s books, B is a debtor. In B’s books, A is a creditor.

Now A draws a bill on B for Rs. 20,000. B accepts the bill and returns it to A.

After acceptance, A is no longer simply waiting on B’s personal account. A now holds a bill that will bring money on maturity. So A records it as Bills Receivable.

B is no longer simply showing A as a creditor. B has accepted a formal bill and will pay it on maturity. So B records it as Bills Payable.

This is the heart of the chapter.

Person	What the bill means	Account used
Drawer	A bill to receive money in future	Bills Receivable A/c
Drawee or acceptor	A bill to pay money in future	Bills Payable A/c

First Identify the Two Sides

Before writing any entry, identify the parties.

Word in the question	Simple meaning	Usual role in a credit sale
Drawer	The person who draws or writes the bill	Seller or creditor
Drawee	The person on whom the bill is drawn	Buyer or debtor
Acceptor	The drawee after accepting the bill	Buyer or debtor
Payee	The person who will receive payment	Often the drawer

If the question says:

A sold goods to B and drew a bill on B. B accepted it.

Then:

Role	Person
Drawer	A
Drawee	B
Acceptor	B
Payee	A, unless the question says otherwise

Students often make mistakes because they begin from the entry instead of beginning from the parties. Always read the sentence like a small business story first.

What Happens Before the Bill Is Accepted

A bill is not recorded as Bills Receivable by the drawer merely because it has been written and sent.

The important moment is acceptance.

Before acceptance, the drawee has not yet agreed in writing to pay under that bill. In many accountancy questions, the wording is short, such as:

A drew a bill on B, which B accepted.

This means the bill has already been accepted, so the entry can be passed.

But if a question only says the bill was drawn and sent for acceptance, and it clearly says acceptance has not happened yet, then the drawer should not record Bills Receivable at that stage.

That one sentence prevents a very common mistake.

Step 1: Entry for Credit Sale

Most bill questions begin with a credit sale.

Suppose Ravi sells goods to Mohan for Rs. 10,000 on credit.

In Ravi’s books, Mohan is the customer who owes money.

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

In Mohan’s books, goods have been purchased from Ravi.

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

Why is this step needed?

Because the bill usually arises from a credit transaction. The sale or purchase creates the original debtor-creditor relationship.

Books	Account debited	Account credited	Reason
Drawer	Drawee’s personal account	Sales A/c	Customer owes money
Drawee	Purchases A/c	Drawer’s personal account	Goods bought on credit

Sometimes a question may say that B already owed A money. In that case, the original sale entry may not be required because the debt already exists. Then you begin with the bill entry.

Step 2: Entry When the Bill Is Drawn and Accepted

Now Ravi draws a bill on Mohan for Rs. 10,000. Mohan accepts it.

In Ravi’s books, Ravi receives an accepted bill. That is an asset because Ravi will receive money on the maturity date.

Entry in Ravi’s books:

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

Why is Bills Receivable debited?

Because an asset comes into Ravi’s books.

Why is Mohan’s Account credited?

Because Mohan’s personal debt is replaced by the bill.

In Mohan’s books, Mohan accepts the bill. That creates a liability under Bills Payable.

Entry in Mohan’s books:

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

Why is Ravi’s Account debited?

Because Mohan’s personal payable to Ravi is reduced.

Why is Bills Payable credited?

Because Mohan now owes the same amount through an accepted bill.

What the Acceptance Entry Really Does

The acceptance entry is not about receiving or paying cash.

No money moves when the bill is accepted.

The entry only shifts the balance from a personal account to a bill account.

In the drawer’s books:

Before acceptance: Drawee owes money personally.
After acceptance: Bills Receivable represents the amount receivable.

In the drawee’s books:

Before acceptance: Drawer is a creditor.
After acceptance: Bills Payable represents the amount payable.

This is why the acceptance entry is sometimes described as a conversion entry. A normal credit balance gets converted into a bill.

Step 3: Entry When the Bill Is Paid on Maturity

Now assume the bill reaches maturity and Mohan pays it.

If Ravi retained the bill till maturity, Ravi receives money from Mohan.

Entry in Ravi’s books:

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

Bank is debited because money is received.

Bills Receivable is credited because the bill asset is now settled and removed.

In Mohan’s books:

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

Bills Payable is debited because the bill liability is cleared.

Bank is credited because Mohan pays the money.

This is called honour of the bill. The bill has been paid properly on maturity.

The Complete Basic Format

Here is the full format in one place.

Assume the drawer sells goods to the drawee, the bill is accepted, the drawer keeps it, and the drawee pays on maturity.

In the Books of the Drawer

Transaction	Debit	Credit
Credit sale	Drawee’s A/c	Sales A/c
Bill drawn and accepted	Bills Receivable A/c	Drawee’s A/c
Bill paid on maturity	Bank A/c	Bills Receivable A/c

In the Books of the Drawee

Transaction	Debit	Credit
Credit purchase	Purchases A/c	Drawer’s A/c
Bill accepted	Drawer’s A/c	Bills Payable A/c
Bill paid on maturity	Bills Payable A/c	Bank A/c

This table is worth practising until it feels natural. The later adjustments in the chapter build on this exact foundation.

Solved Example 1: Simple Drawing, Acceptance, and Payment

Riya sold goods to Kabir for Rs. 18,000 on credit on 1 April. On the same date, Riya drew a bill on Kabir for Rs. 18,000 for three months. Kabir accepted the bill and returned it to Riya. On maturity, Kabir honoured the bill by paying through bank.

Pass journal entries in the books of Riya and Kabir.

In the Books of Riya

Date	Particulars	Debit Rs.	Credit Rs.
Apr 1	Kabir’s A/c Dr.	18,000
	To Sales A/c		18,000
	Being goods sold on credit
Apr 1	Bills Receivable A/c Dr.	18,000
	To Kabir’s A/c		18,000
	Being Kabir’s acceptance received
On maturity	Bank A/c Dr.	18,000
	To Bills Receivable A/c		18,000
	Being bill honoured on maturity

In the Books of Kabir

Date	Particulars	Debit Rs.	Credit Rs.
Apr 1	Purchases A/c Dr.	18,000
	To Riya’s A/c		18,000
	Being goods purchased on credit
Apr 1	Riya’s A/c Dr.	18,000
	To Bills Payable A/c		18,000
	Being Riya’s draft accepted
On maturity	Bills Payable A/c Dr.	18,000
	To Bank A/c		18,000
	Being bill honoured on maturity

Notice how clean the sequence is. The personal accounts appear first, then the bill accounts, then bank closes the bill accounts.

Solved Example 2: When the Debt Already Exists

Sometimes the question does not say that goods are sold today. It may say:

Kabir owed Riya Rs. 12,000. Riya drew a bill on Kabir for the amount. Kabir accepted it. On maturity, Kabir paid the bill.

Here, the debt already exists. So you do not need to record a fresh sale or purchase unless the question asks for all earlier entries.

In the Books of Riya

Bills Receivable A/c    Dr.   12,000
    To Kabir's A/c            12,000

Bank A/c                Dr.   12,000
    To Bills Receivable A/c   12,000

In the Books of Kabir

Riya's A/c              Dr.   12,000
    To Bills Payable A/c      12,000

Bills Payable A/c       Dr.   12,000
    To Bank A/c               12,000

This is a small reading habit, but it saves many unnecessary entries.

Why the Drawer Does Not Debit Bank on Acceptance

This is one of the most common confusions.

When the bill is accepted, the drawer has not received cash. The drawer has received a promise to receive cash later.

So the drawer debits Bills Receivable, not Bank.

Bank is debited only when money is actually received on maturity, or in other special situations like discounting. In the basic case, no cash comes in on the acceptance date.

Moment	What the drawer receives	Debit in drawer’s books
Acceptance date	Accepted bill	Bills Receivable A/c
Maturity date	Money	Bank A/c

This difference is small, but it controls the whole answer.

Why the Drawee Credits Bills Payable on Acceptance

For the drawee, accepting the bill means agreeing to pay the bill amount on maturity.

So a liability is created.

That liability is called Bills Payable.

The drawee credits Bills Payable because liabilities are credited when they increase.

When the bill is later paid, the liability decreases. So Bills Payable is debited on payment.

At acceptance: Bills Payable increases, so credit it.
At payment: Bills Payable decreases, so debit it.

A Memory Map for Both Books

Use this quick map when revising:

Stage	Drawer thinks	Drawee thinks
Sale or purchase	”I have to receive from the customer."	"I have to pay the supplier.”
Acceptance	”I now hold a bill."	"I now owe through a bill.”
Payment	”I received money, so close the bill."	"I paid money, so close the bill.”

Now convert those thoughts into accounts:

Stage	Drawer entry	Drawee entry
Credit transaction	Drawee Dr. to Sales	Purchases Dr. to Drawer
Acceptance	Bills Receivable Dr. to Drawee	Drawer Dr. to Bills Payable
Payment	Bank Dr. to Bills Receivable	Bills Payable Dr. to Bank

Common Mistakes to Avoid

Mistake	Why it is wrong	Correct thought
Debiting Bank when the bill is accepted	No money has been received yet	Debit Bills Receivable
Crediting Sales again when the bill is accepted	The sale was already recorded	Credit the drawee’s account
Treating drawee and acceptor as different people	The drawee becomes acceptor after signing	Use the same person unless stated otherwise
Passing payment entry in drawer’s books when the bill was not held by drawer	The holder receives payment	This guide assumes drawer retained the bill
Forgetting the drawee’s books	Every accepted bill creates Bills Payable for the drawee	Write both sides if asked

The first two mistakes happen because students think each sentence must create a fresh sale or fresh cash entry. It does not.

The bill entry only changes the form of the debt.

How to Read Questions Without Panic

When you see a bill of exchange question, do not start writing immediately.

Read it in this order:

1. Who sold goods or who was already owed money?
2. Who drew the bill?
3. Who accepted the bill?
4. Who held the bill till maturity?
5. Was the bill paid on maturity?

For this article, the answer to question 4 is simple: the drawer holds the bill. The answer to question 5 is also simple: the bill is paid.

That gives you the basic honour entry.

Practice Question

Anika sold goods to Dev for Rs. 25,000 on credit. Anika drew a bill on Dev for the same amount payable after two months. Dev accepted the bill and returned it to Anika. Anika retained the bill till maturity. On maturity, Dev paid the bill by cheque.

Pass entries in the books of Anika and Dev.

Answer in the Books of Anika

Particulars	Debit Rs.	Credit Rs.
Dev’s A/c Dr.	25,000
To Sales A/c		25,000
Bills Receivable A/c Dr.	25,000
To Dev’s A/c		25,000
Bank A/c Dr.	25,000
To Bills Receivable A/c		25,000

Answer in the Books of Dev

Particulars	Debit Rs.	Credit Rs.
Purchases A/c Dr.	25,000
To Anika’s A/c		25,000
Anika’s A/c Dr.	25,000
To Bills Payable A/c		25,000
Bills Payable A/c Dr.	25,000
To Bank A/c		25,000

Check the pattern. It is exactly the same as the earlier example. Only the names and amount have changed.

Final Revision Table

Keep this table for quick revision.

Situation	Entry in drawer’s books	Entry in drawee’s books
Goods sold on credit	Drawee’s A/c Dr. to Sales A/c	Purchases A/c Dr. to Drawer’s A/c
Bill accepted	Bills Receivable A/c Dr. to Drawee’s A/c	Drawer’s A/c Dr. to Bills Payable A/c
Bill paid on maturity	Bank A/c Dr. to Bills Receivable A/c	Bills Payable A/c Dr. to Bank A/c

If you remember nothing else, remember the middle line:

Drawer: Bills Receivable Dr. to Drawee
Drawee: Drawer Dr. to Bills Payable

That is the turning point of the whole topic.

Frequently Asked Questions

What is the journal entry when a bill is accepted by the drawee?

In the drawer’s books, the entry is Bills Receivable A/c Dr. to Drawee’s A/c. In the drawee’s books, the entry is Drawer’s A/c Dr. to Bills Payable A/c.

Is there any entry when a bill is only drawn and sent for acceptance?

If the bill has only been sent and has not yet been accepted, the drawer should not record Bills Receivable. In common questions, the entry is passed when the accepted bill is received back.

Why is Bills Receivable debited in the drawer’s books?

Bills Receivable is debited because the drawer has received an accepted bill, which is an asset. It represents money to be received on maturity.

Why is Bills Payable credited in the drawee’s books?

Bills Payable is credited because the drawee has accepted a liability. The drawee must pay the bill amount on maturity.

What is the entry when the bill is paid on maturity?

In the drawer’s books, the entry is Bank A/c Dr. to Bills Receivable A/c. In the drawee’s books, the entry is Bills Payable A/c Dr. to Bank A/c.

Should Sales be credited again when the bill is accepted?

No. Sales is credited only when goods are sold. Acceptance of the bill does not create a new sale. It only replaces the personal account with a bill account.

What if the question says the amount was already due?

If the amount was already due, you usually begin from the bill acceptance entry. Do not pass a fresh sales or purchases entry unless the question gives a fresh sale or purchase transaction.

Does the drawer always pass an entry on maturity?

The drawer passes the basic maturity entry only when the drawer still holds the bill and receives payment. If the bill was discounted, endorsed, or sent for collection, the maturity treatment changes.

What is the easiest way to remember these entries?

Remember the route. In the drawer’s books, the amount moves from Drawee to Bills Receivable to Bank. In the drawee’s books, it moves from Drawer to Bills Payable to Bank.