Bills of Exchange

A bill of exchange (BOE) is an important topic covered in Accountancy. It is a notice or a written order. The BOE binds one entity to pay a fixed amount to another entity on demand or at a set date. It is mostly used in international trade. Bills of exchange, like cheques and promissory notes, can be drawn by people or banks and are usually transferable through endorsements. There can be up to 3 parties involved: the drawee, the payee, and the drawer. Most importantly, the bills of exchange assist buyers and sellers in handling the risks of exchange rate changes and legal jurisdictional variations.

The basic MCQs on this topic are listed below to help you assess your subject knowledge. Additionally, for your convenience, the responses are also provided.

1. What is the person writing out the order to pay called?

1. 1. Drawee
   2. Acceptor
   3. Payee
   4. Drawer

Answer: option D.

2. Who does the bank seek payment from if a discounted bill is dishonoured?

1. 1. Endorser
   2. Drawee
   3. Drawer
   4. Payee

Answer: option C.

3. What is the acceptance termed as where a bill is accepted without any particular condition?

1. 1. Blank acceptance
   2. Qualified acceptance
   3. General acceptance
   4. Unconditional acceptance.

Answer: option C.

4. In the same country, which bill can be written and accepted?

1. 1. Inland bill
   2. Foreign bill
   3. Accommodation bill
   4. Trade bill

Answer: option A.

5. Choose from the given options, which are least likely to be the feature of bills of exchange.

1. 1. A written document
   2. Specifies the date of payment
   3. Accepted by the drawer
   4. An unconditional order.

Answer: option C.

6. Choose the correct option concerning the number of parties involved in discounting bills.

1. 1. Unlimited
   2. Two
   3. Four
   4. Three

Answer: option B.

7. The activity of signing on the book of instruments for the aim of transfer by the drawer is called.

1. 1. Cheque
   2. Bill
   3. Acceptance of bill
   4. Endorsement. 

Answer: option D

8. Choose the correct option for measuring discounted charges.

1. 1. Discounted bill amount × Rate × Unexpired Period
   2. Discounted bill amount + Rate × Unexpired Period
   3. Discounted bill amount × Rate ÷ Unexpired Period
   4. Discounted bill amount × Rate + Unexpired Period

Answer: option B

9. Who incurs the interest when a bill is renewed?

1. 1. Drawer
   2. Acceptor
   3. Endorser
   4. Drawee

Answer: option B.

10. What is the bill’s due date if the due date falls on a holiday?

1. 1. Following day
   2. The same day
   3. After two days
   4. Preceding day.

Answer: option D

11. Which account in the drawer’s books should be debited if a drawee is deemed insolvent?

1. 1. Solvency account
   2. Bad debt account
   3. Deficiency account
   4. None of the preceding

Answer: option B

12. Ram draws a bill on Shyam for Rs.5000. Ram endorsed it to Rohit. Rohit endorsed it to Amit. The bill’s payee is:

1. 1. Ram
   2. Rohit
   3. Shyam
   4. Amit

Answer: option D.

13. What are the 3 extra days that a drawer grants to the drawee for payment called?

1. 1. Additional days
   2. Days of rebate
   3. Conditional days
   4. Days of grace.

Answer: option D.

14. If a bill is retired, the discount or rebate is a source of income for the?

1. 1. Drawer
   2. Payee
   3. Holder
   4. Acceptor

Answer: option D

15. Choose the correct option concerning what an order to pay includes.

1. 1. Accounts receivable
   2. Demand draft
   3. Bills of exchange
   4. Overdraft

Answer: option C.

16. What criteria are used to determine if a bill of exchange is accepted?

1. 1. When the BOE is paid
   2. When issued by the drawer
   3. When the bill of exchange is renewed
   4. When drawee signs the bill

Answer: option D

17. Which of these bills is not permitted 3 days of grace?

1. 1. Bill before the due date
   2. Bill, at the time of the due date
   3. Bill, after the due date
   4. Bill at sight

Answer: option D.

18. When the notary public notes the bill, it is called.

1. 1. Accepting
   2. Noting
   3. Discounting
   4. None of the above options

Answer: option B

19. The ____ pays the noting charges, although they are recordable from the ___.

1. 1. Drawer, Drawee
   2. Drawee, Drawee
   3. Drawee, Drawer
   4. Drawer, Drawer.

Answer: option C

20. Which book of accounts shows the debit balance?

1. 1. Bills Receivable Book
   2. Journal
   3. Ledger
   4. Creditor Book.

Answer: option A.

21. In the case of a dishonoured bill, the bearer of the bill takes the assistance of an official called?

1. 1. Inspector
   2. Drawer
   3. Manager
   4. Notary public.

Answer: option D.

22. If the drawer needs money and can’t wait until the due date, so they get it from the bank, it is called?

1. 1. Retirement of bill
   2. Endorsement of bill
   3. Discounting of bill
   4. Dishonour of bill.

Answer: option C.

23. What is it called when the acceptor refuses to pay the full amount of a bill to the bill’s holder when the bill reaches its maturity date?

1. 1. Retired bill
   2. Honoured bill
   3. Endorsed bill
   4. Dishonoured bill

Answer: option D.

24. What is the party receiving cash for bills receivable known as?

1. 1. Drawee
   2. Bank
   3. Capitalist
   4. Drawer. 

Answer: option D.

25. Which of the given statements is false?

1. 1. Acceptance of a bill of exchange is mandatory.
   2. Accommodation bills are for imaginary transactions
   3. A bill’s maker is known as the drawee.
   4. All of the above.

Answer: option C.

26. The party ordered to pay the BOE is known as?

1. 1. Drawer
   2. Drawee
   3. Endorsee
   4. Creditor
   5. None of the preceding.

Answer: option B.

27. Choose the correct option for what a bills receivable account is.

1. 1. Real account
   2. Personal account
   3. Machinery account
   4. Nominal account

Answer: option B.

28. Which account is debited by the endorser in the case of an endorsement of the bill?

1. 1. Cash account
   2. Bill payable account
   3. Creditor account
   4. Bill receivable account.

Answer: option C.

29. The bills that become payable at any time when produced by the holder are known as?

1. 1. Term bill
   2. Trade bill
   3. Accommodation bill
   4. Demand bill

Answer: option D.

30. The party authorised to receive payment of a bill of exchange is referred to as:

1. 1. Drawee
   2. Payee
   3. Drawee
   4. None of the preceding options.

Answer: option B.

31. Which account does the acceptor debit when a bill is discharged?

1. 1. Bills receivable account
   2. Creditor account
   3. Bills payable account
   4. Cash account.

Answer: option C.

32. What is the other name for the accommodation bill?

1. 1. Payee bill
   2. Kite bill
   3. Drawee bill
   4. Drawer bill

Answer: option B.

33. What does the abbreviation for B/R stand for?

1. 1. Bank Rebate
   2. Bank Receipt
   3. Bank Receivable Books
   4. None of the above
   5. All of the above.

Answer: option C.

34. If the drawee pays the bill before maturity, it is known as

1. 1. Dishonour of the bill
   2. Renewal of the bill
   3. Retirement of the bill
   4. Endorsement of the bill

Answer: option C.

35. The bill of exchange is stated as a ‘negotiable instrument’ in which of the given acts?

1. 1. Negotiable Instrument Act 1932
   2. Negotiable Instrument Act 1881
   3. Negotiable Instrument Act 1856
   4. Negotiable Instrument Act 1956.

Answer: option B.

36. Who is the payee of the bill on its due date?

1. 1. Notary public
   2. Drawer
   3. Holder of the bill
   4. Drawee.

Answer: option C.

37. What is the meaning of retiring a bill under rebate?

1. 1. Dishonouring bill
   2. Making payment for the bill after the due date
   3. Making payment for the bill before the due date
   4. None of the preceding options.

Answer: option C.

38. What is the liability for the discounted bill known as?

1. 1. Current liability
   2. Contingent liability
   3. Non-current liability
   4. None of the preceding.

Answer: option B.

39. What is the purpose of the accommodation bill?

1. 1. When both parties require funds
   2. Financing actual purchases
   3. Facilitating trade transmission
   4. All of the above
   5. None of the preceding.

Answer: option A

40. Who can request the renewal of the bill of exchange?

1. 1. Drawer
   2. Payee
   3. Endorser
   4. Drawee

Answer: option D.

41. Ram has drawn a bill on Raju, which he has accepted. Which of the statements below is correct?
42. 1. Ram can endorse the bill
    2. Raju can endorse the bill
    3. Raju cannot endorse the bill
    4. Ram can endorse the bill, but Raju cannot endorse the bill.

Answer: option D.

42. Determine the due date of a BOE dated 9 December 2007, payable after 45 days.

1. 1. 26 January 2008
   2. 25 January 2008
   3. 27 January 2008
   4. 24 January 2008.

Answer: option B. 

43. Which account is debited from the drawee’s books at the time of bill renewal?

1. 1. Rebate
   2. Interest
   3. Discount
   4. None of the preceding.

Answer: Option B.

44. How many days are included in the term of the bill when calculating the due date?

1. 1. 5 days
   2. 6 days
   3. 3 days
   4. 2 days

Answer: option C.

45. What is the name of the Notary Public-accredited Bill of Exchange?
46. 1. Noting the Bill of Exchange
    2. Acceptance of Bill of Exchange
    3. Discounting of Bill of Exchange
    4. Renewing of Bill of Exchange.
    5. None of the preceding.

Answer: option A.

46. What is meant by the accommodation bill?

1. 1. Bill of exchange issued and accepted by a trader when paying for goods
   2. Bill of exchange that is or seems to be both issued and payable within the same country or jurisdiction
   3. Bill of exchange issued in one country or jurisdiction and payable within another
   4. Bill endorsed by one party for the benefit of another without regard to whether or not that other will be able to generate money or receive credit.

Answer: option D. 

47. ‘Discounted bill amount + Rate × Unexpired Period’ equals?

1. 1. Bill payments
   2. Renewal charges
   3. Discounting charges
   4. None of the preceding options.

Answer: option C.

48. Who can pay the charge at the notary public in cash?

1. 1. Drawee
   2. Payee
   3. Drawer
   4. Holder of the bill

Answer: option D.

49. What is Bill Endorsement?
50. 1. The bill’s terms and the date of the drawing
    2. The acceptance date as well as the bill’s terms
    3. Extra days for making a payment after the bill’s due date
    4. The process through which the bill’s holder transfers the bill’s title with the help of their creditors.

Answer: option D. 

50. The BOE includes an unconditional ___?

1. 1. Payment
   2. Promise
   3. Order
   4. Pay order

Answer: option C.