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The MCQs below are drawn from the Accountancy & Auditing subject category.
Showing 4191–4200
of 4621 MCQs
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4191
When a bank pays noting charges upon the dishonor of a bill, which account does the drawee credit?
When a bill is dishonored, the drawee is liable to pay the bill amount plus the noting charges. Since the drawee owes this total amount to the drawer, the drawer's account is credited to reflect the increased liability. The noting charges are an expense for the drawee, but the obligation to pay them is owed to the drawer, who initially settled the charges with the bank.
4192
In the context of accommodation bills, to which account is the short remittance credited if one party becomes insolvent?
When a party involved in an accommodation bill arrangement becomes insolvent, the inability to recover the full amount due results in a shortfall. This difference between the amount expected and the amount actually received is recorded in the Deficiency Account, which summarizes the total loss arising from the insolvency.
4193
In whose books of account is the 'Bills Payable' account debited when a bill is dishonoured?
When a bill is dishonoured, the drawee (the person who accepted the bill) must reverse the liability. Since the drawee originally credited the Bills Payable account upon acceptance, they must debit it upon dishonour to cancel the liability and restore the creditor's account.
4194
What term describes the situation where the acceptor of a bill of exchange fails to pay the amount due on the date of maturity?
When a bill of exchange is presented for payment on its due date and the acceptor fails to make the payment, the bill is said to be dishonored. This triggers specific accounting procedures, such as noting charges and reversing the entry.
4195
In whose accounting records is the acceptor's account debited when a bill of exchange is dishonored?
When a bill of exchange is dishonored, the drawer must reverse the previous entry. Since the drawer originally credited the acceptor (drawee) when the bill was drawn, they must now debit the acceptor's account to reinstate the debt owed to them. This reflects that the original payment expectation via the bill has failed and the debtor remains liable for the original amount plus any associated noting charges.
4196
When a bill of exchange is dishonoured after being endorsed to a third party, which account should the drawer debit in their books?
Upon dishonour of an endorsed bill, the drawer must reinstate the acceptor as a debtor. Therefore, the drawer debits the acceptor's account and credits the endorsee's account to reverse the previous endorsement entry, effectively restoring the liability of the acceptor to the drawer.
4197
How is a rebate on a discounted bill, representing unearned discount, classified in accounting?
A rebate on bills discounted represents interest income that has been received in advance but has not yet been earned by the bank. Because the bank has an obligation to provide the service or wait for the maturity of the bill, this unearned amount is classified as a liability until the period expires.
4198
What is the primary purpose for drawing and accepting accommodation bills?
Accommodation bills are bills of exchange drawn, accepted, or endorsed without any actual trade consideration. They are created solely to provide financial assistance or mutual credit support to the parties involved, rather than to settle a genuine debt.
4199
What is the classification of a bill of exchange that is drawn in one country but is payable in a different country?
A foreign bill of exchange is defined by its international nature, specifically where the drawer and the drawee reside in different countries. These instruments are essential in international trade to facilitate payments across borders. In contrast, an inland bill is drawn and payable within the same country, often between parties residing in the same territory, making foreign bills distinct due to their cross-border legal and financial implications.
4200
Which of the following is not considered an essential characteristic of a bill of exchange?
A bill of exchange must be in writing, contain an unconditional order to pay, and specify a certain amount of money. While it can be denominated in foreign currency, it is not a mandatory requirement for the validity of the instrument. The essential feature is that the amount must be certain, regardless of the currency used.
