Understanding Bills of Exchange: Parties, Form, and Accounting

Parties Involved in a Bill of Exchange

The issuance and circulation of a bill of exchange involves the following parties:

• The Drawer: The creditor who issues the bill of exchange, instructing the debtor to pay.
• The Drawee: The debtor who is obligated to pay the bill of exchange at maturity. The drawee may accept or reject the payment order. If accepted, the drawee becomes the acceptor.
• The Payee/Holder/Beneficiary: The person who holds the bill of exchange and is entitled to receive payment.

Form of Bills of Exchange

A bill of exchange must be issued on official forms or stamped paper issued by the State. The amount should be proportional to the value stated on the bill. Improper formatting may cause difficulties in pursuing action against the debtor if the bill is unpaid.

Required Information on a Bill of Exchange

A bill of exchange must include the following information:

• The name of the bill of exchange.
• The maturity date or the date on which payment is due.
• The amount to be paid.
• The place where payment is due.
• The name of the person to whom payment should be made, or to whose order it should be made.
• The location and date of issuance.
• The signature of the debtor.

Accounting for Bills of Exchange

Location in the Balance Sheet:

If the drawee is a company, the bill of exchange should be recorded as a current liability under the account 'payable effects'. If the beneficiary or payee is the company, it should be recorded as an asset under the account 'receivables'.

Open

If the drawee is the company, it must register in person, specifically in current liabilities, to pay the account payable. Now, if the beneficiary or policyholder is the company, it must appear on the assets, specifically the assets, which pay the account receivable.