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The MCQs below are drawn from the Accountancy & Auditing subject category.
Showing 4211–4220
of 4621 MCQs
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4211
What is the defining characteristic of an accommodation bill regarding consideration?
An accommodation bill is a bill of exchange drawn, accepted, or endorsed without any actual consideration or underlying trade transaction. It is typically created to provide financial assistance or credit to one of the parties involved, rather than to settle a debt.
4212
What is the primary function of accommodation bills in a financial context?
Accommodation bills are financial instruments created solely to provide mutual financial support between two parties. Unlike trade bills, which arise from the sale of goods or services, accommodation bills do not represent an actual underlying commercial transaction. They are used to help parties obtain credit or liquidity from banks by leveraging their combined creditworthiness, serving as a form of reciprocal borrowing.
4213
What is the primary characteristic of an accommodation bill?
An accommodation bill is a bill of exchange drawn, accepted, or endorsed without any actual trade transaction or consideration. It is created solely to provide financial assistance or credit to one or more parties involved, allowing them to raise funds by discounting the bill with a bank. Since no underlying sale of goods exists, it lacks the commercial consideration found in trade bills.
A bill of exchange is defined as an instrument in writing containing an unconditional order, signed by the maker, directing a certain person to pay a certain sum of money only to, or to the order of, a certain person or to the bearer of the instrument.
4215
A bill of exchange serves as a formal instrument primarily used for the transfer of which financial obligation?
A bill of exchange is a written, unconditional order used in international and domestic trade to bind one party to pay a fixed sum of money to another party on demand or at a predetermined future date. It effectively facilitates the settlement of debt between a creditor and a debtor, providing a legal mechanism for the transfer of payment obligations.
4216
What term describes the amount deducted by a bank from the face value of a bill of exchange?
When a holder of a bill of exchange discounts it with a bank before the maturity date, the bank charges a fee for the service and the time value of money. This deduction is referred to as the discount on the bill.
4217
What is the appropriate accounting entry for a drawer upon receiving and accepting a bill of exchange from a drawee?
When a drawer receives an accepted bill of exchange, it represents a formal acknowledgment of debt. The drawer records this as a Bills Receivable, which is an asset. Therefore, the Bills Receivable Account is debited to increase the asset, while the drawee's personal account is credited to reduce the amount owed on open account.
4218
When a bill of exchange is settled upon maturity, which account does the acceptor debit?
When the acceptor of a bill of exchange pays the amount due at maturity, the liability represented by the bill is extinguished. Therefore, the acceptor debits the 'Bills Payable' account to remove the liability from their books and credits the cash or bank account to record the payment.
4219
What is the term for the date on which a bill of exchange becomes due for payment by the drawee?
The maturity date is the specific date on which the payment of a bill of exchange falls due. This date is calculated by adding the days of grace to the date on which the bill is drawn.
4220
How are bills of exchange classified when they are drawn and payable within the same country?
An inland bill of exchange is defined as a bill that is drawn within the country and is also payable within the same country, or is drawn upon a person resident within the country. This distinguishes it from a foreign bill, which involves parties in different countries or is payable outside the country of origin.
