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(1) Bill of Exchange has ________ parties.
A. 2
B. 3
C. 4
D. 6
Answer - B
Explanation - A bill of exchange has three parties namely- drawer, drawee and payee.
Drawer- Makes a bill of exchange.
Drawee - Accept bill of Exchange.
Payee:- Receives the payment of Bill.
(2) The party which is ordered to pay the amount of bill of exchange is called:
A. Payee
B. Drawer
C. Drawee
D. None of these
Answer - C
Explanation - In a bill of exchange one person (drawer) directs (orders) another person
(drawee) to make the payment to the payee(payee may be the drawer himself or a third
party). we can say Drawee is acceptor of bill.
(3) The party which is entitled to receive the payment of bill of exchange is known as:
A. Drawee
B. Payee
C. None of these
D. Drawer
Answer - B
Explanation - Payee:- payee is the person whose name is mentioned on the bill of exchange
and to whom the amount is to be paid. the payee may be the drawer himself or a third party.
He has the right to receive payment.
(4) Due date of a bill of exchange drawn on 30th January 2011 for one month will be:
A. 3 March
B. 5 March
C. 4 March
D. 29 Feb
Answer - A
Explanation - Due date of the bill of exchange=30 January 2011 + 1 month + 3 days (days of grace) = 3 March 2011
Days of grace = days of grace means 3 extra days added to the period of a bill. however,
days of grace are not allowed when a bill is payable on demand or at sight. It is custom to
add grace period.
(5) The promissory note should be signed by
A. Drawee
B. Promiser
C. Payee
D. Drawer
Answer - B
Explanation - The promissory note should be signed by the maker of the promissory note,
i.e., promisor. He promises to pay the amount.
(6) When noting charges are paid by the bank at the time of dishonour of bill the
Drawee credits:
A. None of these
B. Drawer's A/c
C. B/R A/c
D. Cash A/c
Answer - B
Explanation - If a bill of exchange is dishonoured, the liability of the drawer(the creditor) will
be restored. Hence, in such cases in the books of the drawee, drawer A/c will be credited. the
journal entry is:
Bills payable A/c ... Dr
Noting charges A/c ... Dr
To drawer A/c (the creditor)
(being bill is dishonoured and credit of drawer is restored)
Drawee A/c is credited because liability arises for drawee after dishonouring the bill.
(7) While calculating the due date of the bill, how many days are added to the period of
the bill:
A. None of these
B. 3 days
C. 5 days
D. 4 days
Answer - B
Explanation - It is a custom to add 3 days in the period of a bill to calculate the due date of
the bill. such 3 extra days are called days of grace.
Maturity date = Due date + 3 days grace period
(8) Encashing the bill before the date of its maturity is called:
A. Discounting of Bill
B. Endorsement of Bill
C. Dishonour of Bill
D. Retirement of Bill
Answer - A
Explanation - Discounting of bill :- A bill of exchange may be encashed before the maturity of
the bill by presenting it to any bank. the bank shall disburse the amount of bill after deducting
its charges(i.e discounting charges).
(9) A bill of exchange renewed generally at the request of
A. Bank
B. None of these
C. Drawee
D. Drawer
Answer - C
Explanation - Because of the inability of the drawee to pay the amount of bill he requests the
drawer to substitute the old bill with a new one. This is called the renewal of the bill. This
drawer charges interest for extended period.
(10) A bill of exchange can not be
A. Refused
B. Accepted
C. Endorsed
D. Crossed
Answer - A
Explanation - Bill of exchange is valid evidence of debt because it is a legal document under
the negotiable instrument Act, 1881. Hence it cannot be refused.
(11) If Acceptance received from Ram is endorsed in favour of Saleem and it is
dishonoured now. then we will credit ________ in the books of drawer:
A. Saleem
B. Trade receivable
C. Ram
D. None of these
Answer - A
Explanation - If an endorsed bill is dishonoured, the liability of drawee will be restored (since
he has not made payment to endorsee) and liability to endorsee (since endorsee has not
received the payment) will also be restored. the journal entry is:
Drawer ... Dr
To endorsee ( Including Noting Charges )
(being endorsed bill is dishonoured)
(12) The origin of the bill receivable book is ________.
A. Profit
B. Trial
C. Ledger
D. The journal
Answer - D
Explanation - Since the journal is a book of original entry because a transaction is first
recorded in the journal then it is transferred to the ledger. Hence the origin of bill receivable
book is the journal. in which Journal entry is recorded first.
(13) If an acceptor does not pay the interest charges then the amount of new bill be
________ with the amount of interest.
A. Remain same
B. Decreased
C. Increased
D. None of these
Answer - C
Explanation - In the case of renewal of bill, if the acceptor doesn't pay interest then it will be
included in the amount of the bill of exchange.
(14) Bill receivable is an
A. Asset
B. Capital
C. Ledger
D. Profit
Answer - A
Explanation - An asset is a resource controlled by an entity as a result of past events and
from which future economic benefits are expected to flow to the entity. Since bills receivable
results in a future economic benefit to the entity hence it is an asset. it is shown as an asset
on the balance sheet. Bill receivable is current assets.
(15) A bill of exchange is renewed at the request of
A. All of these
B. Payee
C. Drawee
D. Drawer
Answer - C
Explanation - Sometimes, the drawee shows his inability to pay the amount of bill before the
date of maturity, in such cases, he requests the drawer to renew the bill, for this drawer
charges interest for extended period.
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