what is the meaning of - rebate of retiring bill.?

Payment of the bill is generally made after the expiry of the specified period. The drawee may make the payment of the bill even before the date of maturity of the bill In case of receiving payment of the bill even before the due date of the bill, the drawer allows certain discount, here known as rebate as a customary trade practice. The logic for allowing this cash discount is simple enough, The drawer will receive the amount earlier, make its use in the business and earn even more profit than what he has been allowing as discount.

Secondly, the drawer has received the payment. A fear that the payment may not be received is over. In certain cases. the drawer makes it clear to the drawee, that he will allow discount at certain specified rate, if the payment is made before the due date.

Calculation of the Amount of Rebate

(i) In certain cases, the amount of the rebate is specified.

(ii) In certain cases, rebate is allowed at specified rate. In such cases the amount of the rebate will be calculated for the period between the date of payment and the due date. The earlier the payment the more amount of rebate is the policy of the business.

Sometimes the acceptor of a bill of exchange desires to meet the bill before its maturity if he has sufficient funds at his disposal. He may ask the holder of the bill to accept the payment before the due date. If the holder agrees to his proposal (obviously he welcomes it), he will withdrew the bill. Such a withdrawal is called "retirement of a bill of exchange". The holder generally allows the acceptor a rebate or discount for the unexpired period of the bill. This rebate is discount is an expense for the holder and a revenue for the acceptor of the bill. The accounting treatment is similar to cash discount.

When a bill of exchange is retired by an acceptor, the following entry is made in books of the holder:

Cash A/C...................Dr. (with actual amount of cash received) Rebate A/C................Dr. (amount of rebate allowed) Bill receivable A/C (full amount of bill)

In the books of acceptor, the following entry is passed:

Bill payable A/C...........Dr. (with full amount) Cash A/C (amount actually paid) Rebate A/C (rebate earned)