Question

Country Bank of Mosman provides short term finance for its clients. The following transactions took place between the bank and its client, Hornsby Construction Centre.

	2019
	January March April August	1 1 1 1		Hornsby Construction Centre discounted its own 60-day bill of exchange made out to the Country Bank of Mosman. The face value of the bill was $70,000and the bill was discounted at 5% p.a. Paid the Country Bank of Mosman the amount due on the bill. Hornsby Construction Centre discounted its own 120-day bill of exchange made out to the Country Bank of Mosman. The face value of the bill was $120,000 and the bill was discounted at 7% p.a. Paid the Country Bank of Mosman the amount due on the bill.

Required: Provide journal entries for the above transactions and necessary adjustments. The financial year ends at 30 June.

Answer 1

1. Journal Entries -

Bill of Exchange -

Bill of exchange is the document that promise to pay certain sum of money after some interval if time. If you have bill of exchange then in case of urgency you can discount it with the bank and receive cash in exchange of that bill. Bank will charge discounting rate and balance cash disbursed.