Treatment Of Bills Receivable In The Accounting Process

Usually this agreement entered into by the buyer stipulates that payment must be made within 30 days. In recent years, the tremendous increase in the use of credit cards, issued by financial institutions to their customers, has done much to simplify these accounting transactions.

Bills, although no longer widely used, are still important in the wholesale trade and in foreign transactions. Bills have certain characteristics that make them negotiable documents. A financial document is negotiable if it can be transferred from one person to another. This is achieved by the holder endorsing the document and delivering it to the other party. Bearer documents are transferred by delivery alone. To be negotiable, a financial document or bill must have the characteristic that, under given circumstances, the owner's rights are unalienable, even though his predecessor's rights were defective or invalid.

A bill is a negotiable document in the accounting process. It is an unconditional, written instruction issued by one person to another where the latter is intended to pay on demand, at a specified or identifiable future date, a certain sum of money, either to the order of the person specified, or to the bearer .

There are at least three parties in the accounting bill records, namely the drawer, the drawee and the payee or bearer. The three parties need to be different persons; The same person can be party to the bill in more than one capacity. For example, the drawer can specify that the money must be paid to himself, therefore he is both the drawer and payee simultaneously.

The definition of a bill stated that it could be made out to 'bearer', in which case any person in possession of the bill on the due date could claim payment from the drawee. This means that the right to receive payment of a bill can be transferred to another person merely by handing it to him or her. If the word 'bearer' is crossed out and replaced by 'order' (relating to the possible negotiability of the document) it means that the drawee is intended to pay the amount concerned to the payee, or to any person specified by him in writing , Or to any holder specifically specified. Such written specification must appear on the bill itself (usually on the back) and is know as an endorsement. Therefore, within the accounting process is bill is considered as a negotiable document.

When an enterprise enters into a large number of bill transactions, it is impractical to make a separate journal entry for each accounting transaction. In such cases, a separate journal with the necessary columns is used as a subsidiary journal. Accepted bills are valuable documents and, as in the case of cash, must be controlled properly in an accounting system. They must be securely stored immediately upon receipt. The balance on the bills receivable accounting control account must be compared regularly with the items in the bills book and with the bills on hand.

Bills receivable are current assets and are shown in the accounting balance sheets as such, together with other current assets. They are shown at face value, less any possible provision for doubtful recovery. Bills receivable are often combined with debtors as a single amount, shown as debtors and bills. As in the case of debts, provision should be made for any bills that could possibly be irrecoverable.

Source by Michael Russell

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