Definition
Acceptance Supra Protest (Acceptance for Honour) refers to the acceptance or payment of a bill of exchange after it has been dishonoured. This is performed by a third party, who wishes to preserve the integrity and creditworthiness of the original drawer or an endorser connected to the bill.
Detailed Explanation
Acceptance supra protest, also known as acceptance for honour, occurs when a bill of exchange is dishonoured either by non-acceptance or non-payment by the drawee. In such circumstances, a person who is not originally responsible for the bill but has a vested interest in maintaining the credit standings of the drawer or endorser comes forward to pay or accept the bill. This intervention is meant to protect the credit rating of the parties involved in the bill from any financial discredit that may arise from non-payment.
The individual who pays the bill under this arrangement could be a friend, associate, or business party who does not legally owe a duty to the bill but chooses to honour it out of goodwill or perceived benefit.
Examples
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Scenario 1: Business Associates
Imagine a scenario where Company A issues a bill of exchange to Company B, and Company B subsequently endorses it to Company C. Upon presentation, Company C dishonours the bill. To prevent damage to their business associate’s reputation, the owner of Company A’s subsidiary company steps in to accept the bill to uphold the honour of the original drawer. -
Scenario 2: Financial Intermediary
A financial intermediary may step in to accept a dishonoured bill of exchange for a merchant client who has a substantial standing in the market. This action helps to maintain the merchant’s strong credit reputation, ensuring continued smooth business operations.
Frequently Asked Questions (FAQs)
What is the purpose of acceptance supra protest?
Acceptance supra protest aims to maintain the financial reputation and creditworthiness of the drawer or an endorser of a bill of exchange that has been dishonoured.
Who can undertake acceptance supra protest?
Anyone who is not originally responsible for the bill but has an interest in preserving the credit standing of the drawer or endorser can undertake acceptance supra protest.
Does acceptance supra protest create a new liability for the person accepting the bill?
Yes, the person who accepts the bill under supra protest assumes liability for the payment of the bill.
Is acceptance supra protest common in modern banking?
Acceptance supra protest is not as common today due to modern financial practices and instruments that provide better protection against dishonours.
When should acceptance supra protest be performed?
It should be performed after the bill has been dishonoured but typically before it is known to other parties to prevent the spread of negative financial implications.
Related Terms
Bill of Exchange
A written, unconditional order by one party (the drawer) to another (the drawee) to pay a specified sum of money to a third party (the payee) at a future date.
Dishonoured Bill
A bill of exchange that has been presented for payment or acceptance but has been refused or disregarded.
Drawer
The individual or entity that issues a bill of exchange, directing the drawee to pay the specified amount.
Endorser
A person who signs the back of a bill of exchange, effectively transferring the right to receive payment to another party.
Online Resources
Suggested Books
- “Accounting Principles” by Jerry Weygandt, Paul Kimmel, and Donald Kieso
- “Financial Accounting” by Spiceland, Thomas, and Herrmann
- “Principles of Accounting” by Belverd Needles and Marian Powers
Accounting Basics: “Acceptance Supra Protest” Fundamentals Quiz
Thank you for exploring the nuanced concept of acceptance supra protest! This detailed guide and quiz aim to enrich your understanding of critical financial instruments and practices.
