What is a Drawer?
A drawer is a person or entity that creates or issues a financial instrument, such as a bill of exchange or a cheque. The drawer is responsible for stipulating the amount to be paid and the date of payment. In essence, the drawer is the party initiating the transaction by instructing a second party (the drawee) to pay the indicated sum to a third party (the payee).
Examples of a Drawer
- Bill of Exchange: Jane Doe, a business owner, issues a bill of exchange to her supplier, ordering her bank (the drawee) to pay $5,000 to the supplier on a specified future date.
- Cheque: John Smith writes a cheque to the local utility company, ordering his bank (drawee) to pay a specified sum of money immediately or upon presentation of the cheque.
Frequently Asked Questions (FAQs)
Q: Who authenticates a bill of exchange?
A: The bill of exchange is authenticated by the drawer’s signature, indicating their responsibility for the order of payment.
Q: Can the drawer be the same as the drawee?
A: No, the drawer and the drawee are distinct parties. The drawer issues the financial instrument, while the drawee is responsible for making the payment.
Q: What are the liabilities of a drawer in case of a dishonored cheque?
A: If a cheque is dishonored due to insufficient funds or any other reason, the drawer may face legal consequences, including penalties, fines, or even criminal charges depending on jurisdiction.
Q: Can an instrument have more than one drawer?
A: Yes, it is possible for a financial instrument to have multiple drawers, especially in partnership or corporate settings.
Related Terms
- Bill of Exchange: A written, unconditional order by one party to pay a certain sum of money to another party on a specified date.
- Cheque: A document ordering a bank to pay a specific amount of money from a person’s account to another individual or entity.
- Drawee: The party, typically a bank, directed by the drawer to pay the specified amount of money mentioned in a bill of exchange or cheque.
- Payee: The person or entity to whom the payment is to be made according to the instructions on a financial instrument.
Online References and Resources
- Investopedia - Bill of Exchange
- Investopedia - Cheque
- The Balance - Understanding Cheques and How They Work
Suggested Books for Further Studies
- “Accounting Made Simple” by Mike Piper: A foundational book that covers basic accounting concepts, including financial instruments like cheques and bills of exchange.
- “Intermediate Accounting” by Donald E. Kieso and Jerry J. Weygandt: This comprehensive text delves into detailed accounting principles and practices.
- “Understanding Financial Statements” by Aileen Ormiston and Lyn Fraser: A detailed guide to interpreting and understanding various financial statements and related financial documents.
Accounting Basics: “Drawer” Fundamentals Quiz
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