Ravi sells goods on credit to Mohan, who has to pay on a fixed date in the future. Ravi makes use of a bill of exchange, and Mohan accepts it. In this case, who is the drawee, and what is the accepted bill called?
Answer & explanation
Correct answer: option 2
The correct answer is Option (2) → Mohan is the drawee, and the accepted bill is called a trade bill.
Option (1) Ravi is the drawee, and the accepted bill is called a commercial bill. — Incorrect. Ravi is the seller, so he draws the bill and is the drawer. Also, a bill is called a commercial bill only when a commercial bank accepts it.
Option (2) Mohan is the drawee, and the accepted bill is called a trade bill. — Correct. Mohan, the buyer, accepts the bill, so he is the drawee. Once accepted, the bill becomes a marketable instrument called a trade bill.
Option (3) Ravi is the drawee, and the accepted bill is called a trade bill. — Incorrect. The name trade bill is right. But Ravi, the seller, is the drawer.
Option (4) Mohan is the drawee, and the accepted bill is called a commercial bill. — Incorrect. Mohan is the drawee. But a bill accepted by the buyer is a trade bill; it becomes a commercial bill only when a commercial bank accepts it.
NCERT (Pre-rationalised Edition): “5. Commercial Bill: A commercial bill is a bill of exchange used to finance the working capital requirements of business firms. It is a short-term, negotiable, self-liquidating instrument which is used to finance the credit sales of firms. When goods are sold on credit, the buyer becomes liable to make payment on a specific date in future. The seller could wait till the specified date or make use of a bill of exchange. The seller (drawer) of the goods draws the bill and the buyer (drawee) accepts it. On being accepted, the bill becomes a marketable instrument and is called a trade bill. These bills can be discounted with a bank if the seller needs funds before the bill matures. When a trade bill is accepted by a commercial bank it is known as a commercial bill.” |