Bills of Exchange for UPSC EPFO APFC: 7 Easy Steps, Due Date, Dishonour Entries and 10 MCQs
Bills of exchange are a small but steady scoring topic in the UPSC EPFO APFC Accountancy section. Questions are short: find the due date, work out the discount, or pass the entry when a bill is dishonoured. The rules are few and fixed. This page puts them in one mind map, a few tables and three worked examples, so you can revise the whole topic in ten minutes. For more APFC notes, open the Study Directory.
Parties (Sec 5)
- Drawer, drawee, payee
- Note has two; cheque is a bill on a bank
Due date (Secs 22–25)
- Term + 3 days of grace
- Public holiday: preceding business day
Four uses
- Retain, discount, endorse
- Or send for collection
Dishonour
- Dr Drawee, Cr where it went
- Add noting charges
Noting and protest
- Sec 99 noting; Sec 100 protest
- Foreign bills often need protest
Renew / retire
- Renewal: new bill + interest
- Retirement: early pay + rebate
1What a bill of exchange is
A bill is a written order. The seller (drawer) tells the buyer (drawee) to pay a fixed sum on a fixed date. The buyer signs “accepted”. Now the seller holds a paper he can keep, sell to a bank or pass on.
Section 5 requires these elements: it must be in writing; it must be an unconditional order (not a request or a promise); it must be signed by the maker (the drawer); it must direct a certain person to pay a certain sum of money only; and payment must be to a certain person, or to that person’s order, or to bearer.
| Point | Bill of exchange | Promissory note | Cheque |
|---|---|---|---|
| NI Act section | Sec 5 | Sec 4 | Sec 6 |
| Nature | Order to pay | Promise to pay | Order to a bank |
| Parties | Three | Two (maker, payee) | Three (drawer, bank, payee) |
| Acceptance | Needed | Not needed | Not needed |
| Days of grace | Yes (if not on demand) | Yes (if not on demand) | Never |
2Parties and life cycle of a bill
These are the people in every question on bills of exchange.
Drawer
- Writes the bill
- Usually the seller
- Books: Bills Receivable
Drawee
- Must pay
- Usually the buyer
- Books: Bills Payable
Payee
- Gets the money
- Drawer or a third party
- Holder at maturity
On acceptance the drawer passes: Dr Bills Receivable, Cr Drawee. The drawee passes: Dr Drawer, Cr Bills Payable.
3Due date of bills of exchange
The due date of bills of exchange is the term plus three days of grace (Section 22), except where the instrument is payable on demand, at sight or on presentment. Section 21 says “at sight” and “on presentment” mean on demand. Bills payable after sight do get grace, counted from the date of acceptance (or of noting or protest for non-acceptance).
For a term in months, use calendar months and the corresponding date (Section 23). If that month has no matching date, the term ends on its last day. For a term in days, exclude the day of drawing, or of presentment for sight, or of the event (Section 24). Then add the three days of grace.
| Bill | Term ends | Due date |
|---|---|---|
| 1 Jan 2026, 3 months after date | 1 Apr | 4 Apr 2026 |
| 31 Jan 2026, 1 month after date | 28 Feb (no 31st; 2026 is not a leap year) | 3 Mar 2026 |
| 10 Mar 2026, 60 days after date | 9 May (exclude 10 Mar, then count 60 days) | 12 May 2026 |
| Payable at sight / on demand / on presentment | — | On presentation, no grace |
| Due date is a public holiday (Sunday, or a day notified by the Central Government) | — | Preceding business day (Sec 25) |
Section 25 is short. If the day of maturity is a public holiday, the instrument is deemed due on the next preceding business day. “Public holiday” includes Sundays and any other day the Central Government notifies in the Official Gazette. The Act has no second rule that an “emergency” or sudden holiday moves the due date forward to the next succeeding business day. That distinction appears in some exam books, but it is not in Section 25.
4Four things the holder can do
Once a bill is accepted, the drawer has four choices. Each one changes the account you credit if a question on bills of exchange later turns to dishonour.
| Choice | Drawer’s entry |
|---|---|
| Retain till maturity | On payment: Dr Bank, Cr Bills Receivable |
| Discount with bank | Dr Bank, Dr Discount, Cr Bills Receivable |
| Endorse to a creditor | Dr Creditor, Cr Bills Receivable |
| Send to bank for collection | Dr Bills Sent for Collection, Cr Bills Receivable |
Worked example (discounting): A bill of ₹20,000 for 3 months is discounted at once at 12% p.a. Discount = 20,000 × 12% × 3/12 = ₹600. Entry: Dr Bank ₹19,400, Dr Discount ₹600, Cr Bills Receivable ₹20,000. When a question gives dates, count the exact unexpired days up to the due date (usually including days of grace).
5Dishonour of bills of exchange
Dishonour of bills of exchange means the drawee does not pay on the due date (or does not accept). The rule is simple: debit the drawee again, and credit whichever account the bill went out through.
| Bill was… | Debit | Credit |
|---|---|---|
| Retained | Drawee | Bills Receivable |
| Discounted | Drawee | Bank |
| Endorsed | Drawee | Endorsee (creditor) |
| Sent for collection | Drawee | Bills Sent for Collection |
Noting charges are added to the amount debited to the drawee. In the drawee’s books: Dr Bills Payable, Dr Noting Charges, Cr Drawer.
Noting (Sec 99)
- Notary records the dishonour on the bill
- The note includes the date, the reason and the notary’s charges
- Fee = noting charges, finally borne by the drawee
Protest (Sec 100)
- Formal certificate by the notary
- Proof of dishonour
- Section 104: a foreign bill must be protested when the law of the place where it is drawn so requires
6Renewal, retirement and insolvency
Renewal and retirement complete the usual set of bills of exchange adjustments.
| Event | Meaning | Drawer’s key entry |
|---|---|---|
| Renewal | Old bill cancelled, new bill for more time | First cancel the old bill (Dr Drawee, Cr B/R if it was retained). Then Dr Drawee, Cr Interest; then Dr B/R, Cr Drawee for the new amount |
| Retirement | Paid before due date | Dr Bank, Dr Rebate, Cr B/R (if retained) |
| Insolvency | Drawee cannot pay in full | Take the bill back to the drawee’s account if needed; then Dr Bank, Dr Bad Debts, Cr Drawee |
Renewal example: A ₹10,000 bill is renewed for 2 months at 12% p.a. Interest = 10,000 × 12% × 2/12 = ₹200. New bill = ₹10,200.
Insolvency example: The drawee’s estate pays 40 paise in the rupee on ₹10,000. Bank ₹4,000, Bad Debts ₹6,000. Insolvency and bad debts link straight to the provisions you study in final accounts adjustments.
7Bills of exchange traps and one-glance summary
These are the traps that cost marks on bills of exchange.
- No days of grace for bills payable at sight or on demand, and never for cheques. “After sight” bills do get grace. Count from the date of acceptance.
- Exclude the drawing date when counting days. If the month has no matching date, use its last day, then add grace.
- If the due date is a public holiday, Section 25 moves it to the preceding business day. Do not apply a forward “emergency holiday” shift that is not in the Act.
- On dishonour of a discounted bill, credit Bank, not Bills Receivable. Add noting charges to the drawee’s debit.
- A promissory note has two parties and needs no acceptance.
| Topic | One-line rule |
|---|---|
| Bill | Unconditional written order, Sec 5 |
| Due date | Term + 3 days of grace (if not on demand) |
| Holiday | Public holiday: preceding business day (Sec 25) |
| Discount | Amount × rate × unexpired period |
| Dishonour | Dr Drawee, Cr where the bill went |
| Noting | Sec 99; cost finally borne by the drawee |
| Renewal | Cancel old bill; new bill = old amount + interest |
| Retirement | Early payment with rebate |
10 practice MCQs with score analysis
Answer all ten, then press Submit. You will see correct, wrong and blank counts, your percentage and an explanation for each question.
FAQ on bills of exchange
What are days of grace in bills of exchange?
Under Section 22 of the Negotiable Instruments Act, three extra days are added to the term of a bill or note that is not payable on demand, at sight or on presentment. The instrument is at maturity on the last of these days.
Who bears noting charges when a bill is dishonoured?
The holder or bank pays the notary first, but the amount is debited to the drawee, who bears it in the end.
What is the difference between renewal and retirement of a bill?
Renewal gives the drawee more time through a new bill, usually with interest. Retirement means the drawee pays before the due date, usually with a rebate.
Is a cheque a bill of exchange?
Yes. Section 6 defines a cheque as a bill of exchange drawn on a specified banker and not expressed to be payable otherwise than on demand, so it gets no days of grace.
Official text: India Code and ICAI.