| Bills Of Exchange Concept In
AP
About bills of exchange concept in Accounts Payable. Bills of exchange may be defined as a commitment subscribed by your customer to pay a certain amount on a given date upon presentation of the bill of exchange. They can be used to materialize installment payments. For example, you have accepted that your customer pays the invoice amount in 3 monthly installments of 1000 USD each. You will issue 3 bills of exhange of 1000 usd each and maturing in month in month m, m+1 and m+2. The bills of exchange will be sent to your customer for acceptance(customer signs them). Once accepted they will be returned to you. You will have to post accounting entries. But note that even though the accepted bills of exchange can be considered as payment, you cannot clear the outstanding customer invoice until the bills are effectively paid at maturity date. You then have to post the bills of exchange as a special GL transaction. Again once you have received the bills of exchange you may decide to discount them right away with your bank and this is done with or without recourse. Depending on the option choosen, accounting entries are different. by discounting the bills you receive payment of the bill and this can be used to clear the outstanding customer invoice. But note that until the bill is finally paid by the customer at maturity date you remain liable. You account for this liability by making postings which will show the discounted bills of exchange as a contingent liability. They do not show in the balance sheet itself but appear in an appendix of the balance sheet.
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