Renewal of Bill Journal Entries

Renewal of bill means issue of new bill to drawee on his request. At the time of maturity, if there is no money in pocket of drawee, he starts to work on his strategy. He calls the drawer or bill holder for a small meeting. In meeting, he do not dishonor the bill but explain the reasons why he is so tight and unable to pay his bill. He requests to write new bill which he can accept for future date when he will get money for paying this bill.

If bill holder or drawer his new offer and cancel his old bill and write new bill for future date and drawee accepts it. It will be renewal of bill.

On cancel of old bill, and delay of money, bill holder may charge the interest. For example, as per renewal bill, there is delay of 3 months. It means, bill holder will get 3 month interest in cash or increase the bill amount. Following are the journal entries of Renewal of Bill

When Drawer or Holder of Bill Cancel the Old Bill

In the books of Drawer or Holder of Bill 

Drawee Account Debit

Bill Receivable Account

Logic : Drawee is responsible after bill cancel. So, his personal account will debit because same asset of drawer has increased in his books. Bill receivable asset has decreased with cancel of bill. So, b/r account will credit.

In the books of Drawee

Bill Payable Account Debit

Drawer or Bill Holder Account Credit

Logic : Drawee convinced  the drawer to cancel the bill. So, his liability of b/p has converted his direct liability. So, Bill payable liability has decreased and drawer liability has increased. So, b/p account will debit and drawer account will credit.

When Drawer or Bill Holder Gets Interest 

In Cash

Bank Account Debit

Interest on Bill Payment Delay Account Credit

Logic : This interest is the income of drawer or bill holder and bank is increase in current asset. That is reason, above entry has passed.

In the books of Drawer or Holder of Bill 

Interest on Bill Payment Delay Account Debit

Bank Account Credit 

Logic : This interest is the loss of drawee  and bank has decreased  in current asset. That is reason, above entry has passed. 

In account Adjustment

When Drawer or Bill Holder Gets Interest 

Drawee Account Debit

Interest on Bill Payment Delay Account Credit

In the books of Drawer or Holder of Bill 

Interest on Bill Payment Delay Account Debit

Drawer Account Credit 

When Drawer or Bill holder Renew New Bill

In the books of Drawer or Holder of Bill 

Bill Receivable Account Debit 

Drawee Account Credit

Logic : Bill receivable asset has increased with new bill.

In the books of Drawer or Holder of Bill 

Drawer or Bill Holder Account Debit 

Bill Payable Account Credit 

Logic : Bill payable liability has increased with new bill. So, bill payable account will credit.


Related Contents 

1. Bill Dishonour Journal Entries 
2. Bill Sent for Collection with Bank Journal Entries 
3. Bill Discounting with Bank Journal Entries
4. Journal Entries for Endorsement of Bill
5. Journal Entries of Bill of Exchange
6. Accounting of Bill of Exchange 

Reference

11th Class Accounting eBook