Commercial papers are papers that are circulated among individuals in the same way as banknotes, and are used as a substitute for money to conduct buying and selling operations and to fulfill obligations if cash is not available, such as bills of exchange, promissory notes and checks.
bill of exchange
It is a written document that includes an order issued by the seller or the creditor (the drawer) to the buyer or the debtor (the drawee) to pay to the order of a third person (the beneficiary) on a specific date, and the beneficiary may be the same as the seller. It is considered a payment voucher.
It is a written document that includes an order issued by the seller or the creditor (the drawer) to the buyer or the debtor (the drawee) to pay to the order of a third person (the beneficiary) on a specific date, and the beneficiary may be the same as the seller. It is considered a payment voucher.
promissory note
It is a written document in which the purchaser or the debtor pledges to pay a certain amount to the seller or the creditor (the beneficiary) on a specific date, and the bond is considered for the seller a receipt paper, while for the buyer it is considered a payment note.
It is a written document in which the purchaser or the debtor pledges to pay a certain amount to the seller or the creditor (the beneficiary) on a specific date, and the bond is considered for the seller a receipt paper, while for the buyer it is considered a payment note.
Accounting treatment of notes receivable
A bill of exchange or a promissory note for the seller is a note of receipt and is considered an asset account. When the establishment sells goods or provides a service to others according to a bill of exchange or a promissory note due on a certain date, the sale process is recorded and evidenced by the note of receipt in the books of the establishment in one of the two ways:
A bill of exchange or a promissory note for the seller is a note of receipt and is considered an asset account. When the establishment sells goods or provides a service to others according to a bill of exchange or a promissory note due on a certain date, the sale process is recorded and evidenced by the note of receipt in the books of the establishment in one of the two ways:
Accounting treatment of notes receivable after receiving them:
There are several ways to dispose of the bill of exchange after receiving it and recording it in the books, and the accounting treatment differs according to the method by which the bill of exchange will be disposed of:
Keeping the notes receivable until their due date:
In this case, the establishment keeps the bill of exchange until its maturity date, and when the maturity date comes and the bill value is collected, the following entry is written:
In this case, the establishment keeps the bill of exchange until its maturity date, and when the maturity date comes and the bill value is collected, the following entry is written:
Debtor creditor statement
xxx
From h/the fund
xxx to h/ notes receivable
Collecting the value of the note receivable in cash
Send the paper to the bank for collection
Where the establishment sends the paper to the bank so that the bank in turn collects it from the debtor at the due date. In this case, an intermediary account is opened in the name of a notes receivable account with a collection fee that is owed until the bank collects the value of the promissory note.
Debtor creditor statement
xxx
From h/ notes receivable for collection
xxx to h/ notes receivable
Send the receipt note to the bank
Upon receiving a notification from the bank stating that the value of the promissory note has been collected on the due date and its value added to the company’s current account after deducting collection expenses, the following entry is recorded:
Debtor creditor statement
of those mentioned
xxx
h/ the bank
xxx
H/ collection expenses
xxx to h/ notes receivable for collection
The bank's collection of the value of the note receivable after deducting collection expenses
Paper discount at the bank:
The establishment may wish to collect the value of the promissory note before the due date, so the establishment sends the paper to the bank and collects its value immediately after the bank deducts part of the value of the promissory note called (discount expenses).
Debtor creditor statement
of those mentioned
xxx
H/ the fund or the bank
xxx
H/ discount expenses
xxx to h/ notes receivable for the discount
Collecting the value of the note receivable in cash or in the current account after deducting it
Transfer of paper to another beneficiary (endorsement):
Receipt notes are negotiable so that they can be transferred from one person to another. For example, the establishment may be able to purchase goods from a supplier based on the receipt notes that it obtained from the debtors, then the following entry is written:
Debtor creditor statement
xxx
From h / purchases or goods
xxx to h/ notes receivable
Purchase of goods according to an endorsed receipt note
Non-payment of the bill of exchange:
If the due date of the note of receipt has come and the debtor has not paid its value, in this case, reverse entries will be recorded for the entries that were recorded previously and according to the aspects of disposing of the bill, and the buyer will be charged with the bank expenses incurred by the facility.
Debtor creditor statement
xxx
From h/debtors
xxx to h/ notes receivable or notes receivable for collection
Failure of the buyer to pay the payment note on the due date and prove the amount owed by the buyer
Accounting treatment of notes payable:
The bill of exchange or promissory note for the buyer is papers of payment and is considered one of the accounts of the liabilities (obligations). When the establishment purchases goods or obtains a service from others according to a promissory note or promissory note due on a certain date, the purchase of the goods is recorded in the books of the establishment in one of the two ways:
The first method:
First: The deferred purchase transaction is recorded (on the account).
Debtor creditor statement
xxx
From h / purchases or goods
Debtor creditor statement
xxx
From h / purchases or goods
xxx to h/ creditors
deferred purchase (on account)
Second: Proof of delivery of a payment note to the seller (the creditor)
Debtor creditor statement
xxx
From h/ creditors
xxx to h/ notes payable
Pay the account by means of a payment slip
The second method:
Proof of the purchase process under a direct payment note.
Debtor creditor statement
xxx
From h / purchases or goods
Debtor creditor statement
xxx
From h / purchases or goods
xxx to h/ notes payable
Purchasing goods under direct payment paper
If the facility does not pay the payment notes on the due date, then an entry is made proving the debt owed to the seller, and the notes payable account is closed as follows:
Recording the debt owed to the creditor
Debtor creditor statement
xxx
From h/notes of payment
Debtor creditor statement
xxx
From h/notes of payment
xxx to h/ creditors
Failure of the establishment to pay the value of the payment note on the due date and prove the amount due to the seller
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