Bills of Exchange (Class 11 Accountancy)

Practise chapter-wise MCQs for Class 11 Accountancy — Bills of Exchange. Every question comes with the correct answer and an explanation.

Bills of Exchange (Class 11 Accountancy)

Practise chapter-wise MCQs for Class 11 Accountancy — Bills of Exchange. Every question comes with the correct answer and an explanation.

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TL;DR: Practise chapter-wise MCQs for Class 11 Accountancy — Bills of Exchange. Every question comes with the correct answer and an explanation.

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Practise chapter-wise MCQs for Class 11 Accountancy — Bills of Exchange. Every question comes with the correct answer and an explanation.

Bills of Exchange MCQs with Answers & Explanations

Q1. When a bill of exchange is payable on demand, it is also known as:

  1. A trade bill
  2. A promissory note
  3. A documentary bill
  4. A cheque ✓ (correct)

Explanation: A cheque is a specific type of bill of exchange that is drawn on a banker and payable on demand.

Q2. If a bill of exchange is payable 'at sight', when is it due for payment?

  1. Immediately upon presentation ✓ (correct)
  2. After a specified period from the date of issue
  3. On a specified future date
  4. Thirty days after acceptance

Explanation: A bill payable "at sight" falls due the moment it is presented to the drawee — no days of grace and no fixed future date.

Q3. What is the consequence of dishonouring a bill of exchange?

  1. The drawee is discharged from all liability
  2. The holder can sue the drawer and endorsers ✓ (correct)
  3. The original debt is cancelled
  4. The bill becomes invalid

Explanation: Dishonour of a bill of exchange (by non-acceptance or non-payment) makes all parties liable on the bill (drawer and endorsers) liable to the holder, who can take legal action against them.

Q4. When a bill is discounted with a bank, the bank charges:

  1. Discount only
  2. Interest only
  3. Discount and commission ✓ (correct)
  4. Interest and commission

Explanation: When a bill is discounted, the bank deducts the interest for the unexpired period of the bill and may also charge a commission for its services.

Q5. Endorsement of a bill of exchange means:

  1. The drawee accepting the bill
  2. The drawer drawing the bill
  3. Cancelling the bill
  4. Transferring the right to receive payment to another person ✓ (correct)

Explanation: Endorsement is the process of signing on the back of the bill to transfer the ownership and the right to receive payment to another party.

Q6. When the drawee accepts the bill of exchange, it becomes:

  1. A legally binding instrument ✓ (correct)
  2. A draft
  3. A promissory note
  4. A conditional order

Explanation: Acceptance by the drawee signifies their unconditional promise to pay the amount specified in the bill on the due date, making it a legally binding instrument.

Q7. What is the primary purpose of a bill of exchange in business transactions?

  1. To acknowledge debt without a payment commitment
  2. To provide credit facilities and facilitate payment ✓ (correct)
  3. To record cash sales
  4. To avoid stamp duty

Explanation: Bills of exchange are primarily used to formalize credit transactions, allowing a seller to extend credit and a buyer to defer payment, with the bill acting as a negotiable instrument.

Q8. A bill of exchange can be drawn by:

  1. The payee
  2. Any party to the bill
  3. The drawer ✓ (correct)
  4. The drawee

Explanation: The drawer is the person who creates and signs the bill of exchange, ordering the drawee to pay a certain sum of money.

Q9. Retiring a bill under rebate means:

  1. Dishonouring the bill
  2. Extending the due date of the bill
  3. Paying the bill on its due date
  4. Paying the bill before its due date and receiving a discount ✓ (correct)

Explanation: Retiring a bill under rebate refers to the situation where the holder pays the bill before its maturity date and is allowed a rebate (discount) by the drawer or holder.

Q10. Which of the following is NOT a party to a bill of exchange?

  1. Indorser ✓ (correct)
  2. Drawee
  3. Payee
  4. Drawer

Explanation: While an indorser can become a party through endorsement, they are not an original party to the bill's creation. The primary parties are the drawer, drawee, and payee.

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