Briefly explain the purpose and benefits of retiring a bill of exchange to the debtor and the creditor.

Explanation

There area unit instances once a bill of exchange is organized to be retired before the maturity by mutual affection between the drawer and also the remunerator. This happens once the remunerator of the bill has funds at his disposal and makes an invitation to the drawer or holder to simply accept the payment of the bill before its maturity.

If the holder agrees to try to to thus, the bill is claimed to possess been retired. The retiring of a bill attracts a curtain on the bill transactions before the expiration of its traditional term.

To encourage the retirement of the bill, the holder allows some discount called rebate on bills for the period between date of retirement and maturity. The rebate is calculate at a certain rate of interest. The accounting treatment on the retirement of a bill is similar to the accounting treatment when a bill is honoured by the acceptor on the due date in the ordinary course. The only difference between the two relates to the granting of rebate.