Question

How are Bank Drafts, Commercial Drafts, and Trade Acceptances used in a business environment? How are they accounted for?

Answer 1

Bank drafts are used for the payment of vehicle purchases or for the real estate transactions.

Commercial draft used for the international and domestic transactions.

Trade acceptance is the bill of exchange.

Accounting treatment:

At the time of bank draft received from the customer, which is considered as a cash received.
Therefore, the credit the accounts receivable account.
At thye time of bank draft paid to the suppliers which is considered as the cash paid to the accounts payables. Therefore, debit the accounts payable account.

In the case of the trade acceptance, the credit sales happened then the seller debit the customer (sundry debtors or accounts receivable).