Journal Entry for Endorsement

When the seller sells goods on credit to other person in return of bills of exchange then the money of the seller is locked up until the maturity of the bill, however if the seller wants to use this bill of exchange then he or she can use it by endorsing this bill of exchange it to its own creditor. In simple words the seller transfers the bill of exchange to the creditor and this process of transferring is called endorsement.

In case of endorsement the seller will be endorser, and the person to whom the bill of exchange is transferred will be called endorsee. Hence when the bill of exchange matures it is the endorsee who will receive payment from the original creditor of the seller. Let’s look at the various journal entries which are passed in the books of both the parities.

Journal entries in the books of endorser

A) When bill is endorsed the following entry is passed

                                      Endorsee account Dr

                                              To Bills of exchange account

B) When bill matures there is no need for any entry in the books of endorser

C) However if the original creditor dishonors the bill then another entry is passed that is

                 Drawee account Dr

                      To Endorsee account

Hence in case of dishonor endorsee becomes creditor again and drawee becomes debtor of the company again.

Journal entries in the books of Endorsee

A) When bill is endorsed the following entry is passed

                               Bills receivable account Dr

                                  To Endorser account

B) When bill matures on maturity

                            Cash account Dr

                             To Bills receivable account

C) On Dishonor of bill

                             Endorser account Dr

                                 To Bills receivable account

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