Discounting of Bills

Discounting of Bills:

When the bill is taken to a bank and the necessary cash is received, the act is known as discounting. The bank will always deduct a small sum depending upon the rate of interest and the period of maturity.

Maturity of a promissory note or bill of exchange: "The maturity of a promissory note or bill of exchange is the date at which it falls due." A promissory note or a bill of exchange may be payable:-

a)        On demand; or

b)       On a specified date, or

c)        After a specified period.

In the first case amount is payable on the instrument, when the demand is made. In the second case, payment can be claimed on a specified date. In the third case, date of maturity has to be calculated. Every instrument, payable otherwise than 'on demand' is entitled to three days of grace.

The following instruments are not entitled to 'days of grace'.

(a)      A cheque

(b)A bill or note payable 'at sight' or on presentment' or 'on demand',

(c)  A bill or note in which no time is mentioned.

The following instruments are entitled to 'days of grace':

(a)      A bill or note payable on a specified day,

(b) A bill or note payable 'after sight,

(c) A bill or note payable at a certain period after date,

(d) A bill or note payable at a certain period after the happening of a certain event.

Ø  Calculation of date of maturity :--

If a promissory note or bill of exchange is made payable after stated number of months after date or after sight or after a certain event, it becomes payable three days after the corresponding date of the month after the stated number of months. If the month in which the period would terminate has no corresponding day.  The period shall be held to terminate on the last day of such month.

1.   In the above case, the day on which the instrument is drawn or presented for acceptance or sight or the day on which the event happens is to be excluded.

               2.  When the day on which a promissory note or bill of exchange is at maturity is a public holiday, the instrument shall be deemed to be due on the preceding day. E.g. A bill falling due for payment on August 15 will have to be paid on August 14.

Demo Classes of Accounts (CA/CMA/CS/B.Com/11-12th) by CA/CMA Santosh Kumar Sir

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