Retiring a Bill of Exchange under Rebate

Retiring a Bill of Exchange – Definition

The act of drawee to withdrew the bill from circulation by making the payment of the bill before its maturity is called retiring a bill of exchange.

Explanation

From the drawee’s point of view, so far we have discussed that drawee either pays the bill on the due date or dishonors the bill on the due date. There is another option available to drawee that is retiring of bill. When drawee makes the payment of the bill before maturity, drawer allows some discount to drawee known as rebate.

Rebate

It is concession or discount allowed by holder of the bill to the drawee for making payment of the bill before maturity. It is an expense for the holder and revenue for the drawee. Rebate is considered “Discount Allowed” from holder’s point of view and “Discount Received” from drawee’s point of view.

Example (Retiring a Bill of Exchange)

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On 1st January 2019, X sold goods to Y for $20,000 on credit. On the same date, X draws a bill payable after four months on Y. The bill was accepted by Y and returned to X. After two months Y wanted to pay the bill. X agreed and Y paid the bill under a rebate of 12% p.a.

Required: Make journal entries in the books of X and Y.

Retiring a bill of exchange under rebate

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Bill of Exchange Retired Under Rebate - Journal Entries

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