Meaning of Bill of Exchange

Meaning of Bill of Exchange: A Bill of Exchange is something that reduces our credit risk, Let’s understand this concept better with the help of an example; Omkar being the seller sold goods worth Rs 10,000 to Ishaan being the buyer on credit. In the given case, Omkar has sold goods to Ishaan believing that on some future date he will make payment. Now, we can analyze that Omkar is a little skeptical regarding the certainty of receipt and time of such payment. In order to set an exact date of payment and to make his transaction legally valid, Omkar will draw a document in writing. Such a document is called Bills of Exchange.

Meaning of Bill of Exchange

Hence, we can derive the meaning of Bills of Exchange from this example, It is a document in writing given by seller to buyer, directing the buyer to pay his debt amount on a date mentioned in it. In simple words, a Bill of Exchange is a credit instrument.

As per the Negotiable Instrument Act, 1881, “ A Bill of Exchange is an instrument in writing containing an unconditional order signed by the maker, directing a certain person to pay a certain sum of money only to, or to the order of, a certain person or to the bearer of the instrument.”

For Example, Arjun sold goods to Sahil worth Rs 10,000 on July 18, 2013. On the same day, Arjun drew a bill of Rs 10,000 on Sahil for 90 days which is duly accepted on the same date.


What are Reserves?

What are Reserves? The amount that is kept out of the profits of an enterprise to meet the future ‘unknown’ or ‘unexpected’ liabilities is known as reserve.

What is Depreciation?

Depreciation is an allocation of the cost of an asset over its useful life and is not a valuation process of the asset. It should be noted…

Types of Reserves

Types of Reserves: The reserves can be broadly bifurcated as revenue reserves and capital reserves. The revenue reserves can be further classified as general reserves and specific reserves.

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