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| Accounting Treatment for Bill Discount |
Accounting Treatment for Bill Discount | Journal Entries & Examples:
If you are a recent graduate or pursuing a master’s degree in Commerce, or currently studying BBA, MBA, CA, CMA, or ACCA, and aiming to build a successful career in accounting, a strong understanding of accounting treatments in the corporate sector is essential. Practical knowledge of these treatments not only strengthens your professional foundation but also significantly increases your chances of securing your desired job.
In today’s competitive job market, now is the right time to enhance your skills by mastering accounting treatments used in real-world business environments.
Hello, I’m Md. Harun (Rashid), your learning partner. In this session, I will guide you through an important topic: Accounting Treatment for Bill Discounting.
What is The Meaning of Bill Discount?
Bill discount refers to the process by which a holder of a bill of exchange receives payment from a bank before the bill's maturity date. The bank deducts a certain amount as a discount or charges and pays the remaining amount to the business.
Advantages of Bill Discounting:
- Immediate cash flow
- No need for collateral
- Improves working capital management
- Simple and quick financing method
Disadvantages of Bill Discounting:
- Bank discount increases expenses
- Risk of bill dishonor
- Not suitable for long-term financing
What is Accounting Treatment for Bill Discount?
Accounting treatment plays a vital role in maintaining accurate financial records in the corporate sector. One common yet important concept is the accounting treatment for bill discount. Bill discounting allows a business to receive immediate cash by discounting a bill of exchange with a bank before its maturity date. Understanding the correct accounting treatment for bill discount is essential for commerce students, accounting professionals, and job seekers preparing for roles in corporate accounting. This guide explains the concept with clear journal entries, examples, and practical explanations.
Step-01: Receipts Acceptance Copy:
After the Bill of exchange is prepared, it is sent to the party for acceptance of the bill. After accepting the bill, the commercial department places it with a negotiable bank for discounting the bill. The bank prints an Acceptance copy.
Step-02: IDBP Purchase Letter:
In practice, the commercial department firstly as request letter for providing the IDBP facility to the negotiable Bank. Like -
01January, 2026
The Manager
ABC Bank PLC.
Foreign Exchange Branch (Dhaka)
Sub: Request for Providing IDBP facility.
Dear Sir,
With reference to the above, we request you to please provide us with the IDBP facility against the following accepted export bills and credit the bill's purchase amount to our CD A/C No. 51625500005560 maintained with your branch. Details are given below:
|
SL.No. |
Export Bill No. |
LC No. |
Bill Value (USD) |
Maturity Date |
|
01 |
29672558001 |
2967255560 |
45,000.00 |
02.05.2026 |
|
02 |
2967255802 |
2967255561 |
50,000.00 |
02.05.2026 |
|
03 |
2967255803 |
2967255562 |
68,000.00 |
02.05.2026 |
|
04 |
2967255804 |
2967255563 |
50,000.00 |
02.05.2026 |
|
|
|
Total |
$2,13,000.00 |
|
The aforesaid bills amount to us. Will pay from our own source if the buyer's bank fails to pay on maturity. Your early co-operation in this regard will be highly appreciated.
Thanking you,
X Rahman
Chief Financial Officer(CFO)
Step-03: Accounting treatment:
Let’s start with the accounting treatment:
Example of Accounting Treatment for Bill Discount:
Mr. A draws a bill of ৳50,000 on Mr. B for 3 months. The bill is discounted with a bank at a discount of ৳600.
Journal Entry:
|
Serial No. |
Ledger Name |
Cost center |
Debit TK. |
Credit TK. |
|
1. |
ABC Bank Ltd CD-56980(if) |
|
49,000 |
|
|
2. |
Bank charge (Export) |
|
600 |
|
|
3. |
ABC-IBP-25/2560LCNO.400569 |
|
|
49,600 |
Accounting Treatment When a Discounted Bill Is Dishonored:
If a discounted bill is dishonored on maturity, the bank debits the amount to the business account. The customer becomes liable again, and the bill is reinstated in the books.
Practical Example-01:
Suppose Export Bill No.29672558001, LC No.2967255560, Bill Value (USD) $45,000.00, Maturity Date: 02.05.2026. The Bill was discounted at 90% at ABC Bank amount was credited to our CD #A/C-4050505560 dt.02.01.2026
Note:
90% Discount=$45000*90%=$40500*121=Tk.49,00500
Bank Charged:
· LC Commission = TK.300
· Printing & Stationary = TK.200
· Postage & Telegram =TK.100
*Total Amount of =TK.600
XYZ Mills Ltd
House No.32, Road No. 50, Dhaka.1250
Bank Receive Voucher:
|
Serial No. |
Ledger Name |
Cost center |
Debit TK. |
Credit TK. |
|
1. |
ABC Bank Ltd CD-56980(if) |
|
49,00,500 |
|
|
2. |
Bank charge (Export) |
|
600 |
|
|
3. |
ABC-IBP-25/2560LC NO.400569 |
|
|
49,01,100 |
Narration: Received 90% Bill Value $45,000 Received $ 40,500 dt. 02.01.2026.
Conclusion:
The accounting treatment for bill discount is a fundamental topic in financial accounting and corporate accounting practices. Proper recording of discounted bills ensures accurate profit calculation, correct expense recognition, and compliance with accounting standards.
For students pursuing BBA, MBA, CA, CMA, or ACCA, mastering this topic strengthens practical accounting skills and improves job readiness in the corporate sector.
Free Asked Questions(FAQ):
Q. 01. What is the accounting treatment for bill discount?
The accounting treatment for bill discount refers to the process of recording bills receivable that are discounted with a bank before maturity. When a bill is discounted, the business receives immediate cash after deducting bank charges, which are treated as an expense in the profit and loss account.
Q. 02. Which account is debited when a bill is discounted?
At the time of bill discounting, the Bank Account is debited with the net amount received, the Bank Charges Account is debited with the discount amount, and the Bills Receivable Account is credited with the full value of the bill.
Q. 03. Is bill discounting an income or an expense?
Bill discounting itself is not an income. The discount charged by the bank is treated as an expense, as it represents the cost of receiving early payment.
Q. 04. What happens if a discounted bill is dishonored?
If a discounted bill is dishonored, the bank recovers the amount from the business. The customer’s account is debited, and the Bills Receivable Account is reinstated, along with any additional bank charges.
Q. 05. Why is accounting treatment for bill discount important?
Proper accounting treatment for bill discount ensures accurate financial reporting, correct expense recognition, and compliance with standard accounting principles followed in the corporate sector.