Bill Receivable Journal Entry is Debit the Bills Receivable Account and Credit the Sales. Bills Receivable refers to a bill of exchange or promissory note that a business holds and expects to receive payment on a future date. It is considered an asset because it represents money owed to the business. Below are examples of how to record Bills Receivable in different scenarios.
Example 1: Acceptance of a Bill Receivable
Suppose your business sells goods worth $10,000 to a customer on August 1, 2024. The customer issues a bill of exchange, agreeing to pay the amount in 90 days.
Journal Entry on August 1, 2024:
| Date | Account Title | Debit ($) | Credit ($) |
|---|---|---|---|
| 08-01-2024 | Bills Receivable | 10,000 | |
| 08-01-2024 | To Sales | 10,000 |
Explanation:
- Bills Receivable is debited to recognize the asset (amount owed by the customer).
- Sales is credited to record the revenue from the sale of goods.
Example 2: Discounting a Bill Receivable
On September 1, 2024, your business decides to discount the above bill receivable at a bank before its maturity date. The bank charges a discount of $200.
Journal Entry on September 1, 2024:
| Date | Account Title | Debit ($) | Credit ($) |
|---|---|---|---|
| 09-01-2024 | Cash | 9,800 | |
| 09-01-2024 | Discount on Bills Receivable | 200 | |
| 09-01-2024 | To Bills Receivable | 10,000 |
Explanation:
- Cash is debited for the amount received after the discount.
- Discount on Bills Receivable is debited as an expense for the discount charged by the bank.
- Bills Receivable is credited to remove the asset from the books.
Example 3: Endorsement of a Bill Receivable
Your business endorses a bill receivable of $5,000 (received from a customer) to a creditor as payment for a debt.
Journal Entry on October 1, 2024:
| Date | Account Title | Debit ($) | Credit ($) |
|---|---|---|---|
| 10-01-2024 | Accounts Payable | 5,000 | |
| 10-01-2024 | To Bills Receivable | 5,000 |
Explanation:
- Accounts Payable is debited to reduce the liability owed to the creditor.
- Bills Receivable is credited to transfer the receivable to the creditor.
Example 4: Collection of a Bill Receivable at Maturity
On October 30, 2024, the bill receivable of $10,000 (from Example 1) matures, and your customer pays the amount in full.
Journal Entry on October 30, 2024:
| Date | Account Title | Debit ($) | Credit ($) |
|---|---|---|---|
| 10-30-2024 | Cash | 10,000 | |
| 10-30-2024 | To Bills Receivable | 10,000 |
Explanation:
- Cash is debited to record the receipt of payment.
- Bills Receivable is credited to remove the receivable from the books.
Example 5: Dishonor of a Bill Receivable
If the customer fails to pay the $10,000 bill receivable on its maturity date, the bill is dishonored.
Journal Entry on October 30, 2024 (Dishonor):
| Date | Account Title | Debit ($) | Credit ($) |
|---|---|---|---|
| 10-30-2024 | Accounts Receivable | 10,000 | |
| 10-30-2024 | To Bills Receivable | 10,000 |
Explanation:
- Accounts Receivable is debited to recognize that the customer still owes the amount.
- Bills Receivable is credited to cancel the receivable, as it is no longer valid.
Example 6: Settlement of Dishonored Bill
After the bill is dishonored, the customer later pays the amount along with an additional interest charge of $300 on November 15, 2024.
Journal Entry on November 15, 2024:
| Date | Account Title | Debit ($) | Credit ($) |
|---|---|---|---|
| 11-15-2024 | Cash | 10,300 | |
| 11-15-2024 | To Accounts Receivable | 10,000 | |
| 11-15-2024 | To Interest Income | 300 |
Explanation:
- Cash is debited for the total payment received.
- Accounts Receivable is credited to clear the customer’s debt.
- Interest Income is credited to record the additional amount earned.
These examples provide a comprehensive overview of how Bills Receivable are recorded in various situations, ensuring that your financial records accurately reflect the business’s assets and cash flows.