At the time of retirement of a bill, the acceptor debits :

Question

Accepted Answer

The correct option is 1:
When a bill is retired, it signifies that the acceptor (the debtor) is settling their obligation by making payment before the official maturity date. From the acceptor's perspective, this obligation is represented by the 'Bills Payable Account,' which is a liability account. Following the fundamental rules of the double-entry system, a reduction or cancellation of a liability requires a debit. Consequently, to remove the legal debt of the bill, the Bills Payable Account must be debited with the full face value of the bill, thereby eliminating the liability from the acceptor's books.

The incorrect option is 2:
The Discount account is not debited by the acceptor at the time of retirement. The discount, often referred to as a rebate, is the incentive received by the acceptor for paying the bill early. This rebate is an income or gain for the acceptor, as it reduces the total amount of cash they have to pay. Since all gains and incomes are credited according to the rules of nominal accounts, the Rebate on Bill Retired account (or Discount account) is credited, not debited.

The incorrect option is 3:
This option is incorrect because it proposes debiting both the Bills Payable Account and the Discount account, which is a contradiction of accounting principles. While the Bills Payable Account is correctly debited to cancel the liability, the Discount (Rebate) account is a gain for the acceptor and is therefore credited. The final journal entry involves a debit to Bills Payable, and credits to both the Discount/Rebate account and the Cash/Bank account for the net amount actually paid.

The incorrect option is 4:
This option is incorrect as the retirement of a bill is a significant financial transaction that must be recorded in the books of account. The entry is essential to correctly reflect the reduction in the firm's liabilities and the corresponding decrease in cash and recognition of the gain (rebate). Therefore, it is mandatory to debit the Bills Payable Account to cancel the liability, meaning it is false to say neither account is debited.