Unit-10 Other Subsidiary Books

In this unit, we intend to take up the remaining books.

Define a bill of exchange. How does it differ from a promissory note.

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Learning Pundits Content Team

Written on Jun 25, 2019 3:34:34 PM

Now-a-days 'credit' is a common phenomenon in business. The manufacturer has to depend on credit for the supply of raw materials. He too allows credit to the wholesalers. The wholesalers in turn, allow credit to the retailers. The retailers also sell on credit to some of the ultimate consumers. Credit facility enables the buyer to purchase goods even when he cannot pay immediately. Thus, credit facilitates more transactions than otherwise possible under cash payment basis. Credit may also be granted by a moneylender, a bank or a financial institution. Credit is generally provided by obtaining written documents called 'Instruments of Credit'. They serve as proof for the existence of credit. The most common instruments of credit are bills of exchange, promissory notes, and Hundies. These are also called 'Negotiable Instruments' because the title of the instrument can be transferred to a third party for valuable consideration. According to the Indian Negotiable Instruments Act, 1881, a bill of exchange is 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.

A promissory note is an instrument in writing (not being a bank note or a currency note) containing an unconditional undertaking, signed by the maker to pay a certain sum of money only to, or to the order of; a certain person, or to the bearer of the instrument. Hundi is the Indian name of a bill of exchange. Hundies have been in use in India for a long time.

Bills of exchange and promissory notes are written undertakings given by the debtor to pay a certain sum of money on demand or after a specified period. They are mostly used against purchase of goods or assets and in the settlement of other claims

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