What is “Payable to Bearer”?§
Definition§
“Payable to Bearer” refers to a type of bill of exchange or other negotiable instrument that does not specify a particular payee. Instead, payment is made to whoever holds the document (the “bearer”). Since the identity of the holder is not predetermined, these instruments can change hands easily through physical transfer.
Examples§
Example 1:
Imagine Company A issues a bill of exchange that is “payable to bearer.” Employee B finds the bill and decides to use it to pay a supplier. Supplier C accepts the bill without asking for an endorsement from Company A. This transaction is valid because the bill is payable to the bearer.
Example 2:
John receives a bearer bond as a gift. Since it is a bearer security, John can sell it to anyone just by physically handing it over. The new owner, Sara, now holds the bond and is entitled to the interest payments.
Frequently Asked Questions§
Q1: What protection do I have as a holder of a ‘payable to bearer’ instrument?
A: The main risk with ‘payable to bearer’ instruments is the ease with which they can be transferred. If lost or stolen, anyone holding the instrument can claim it. Ensure safekeeping of such documents.
Q2: Can a ‘payable to bearer’ bill be converted to ‘payable to order’?
A: Yes, a holder can endorse the bill by adding a name, thereby converting it into a ‘payable to order’ instrument.
Q3: Are ‘payable to bearer’ instruments common today?
A: They are less common compared to electronic transfers and named instruments due to the high risks associated with loss or theft.
Related Terms§
Payable to Order: This refers to a bill of exchange or other negotiable instrument that specifies the payee who must endorse it to transfer ownership.
Bill of Exchange: A written, uncondtional order by one party to pay a fixed sum of money to another party on demand or at a specific future date.
Bearer Bond: A type of fixed-income security where no ownership information is recorded, and possession of the bond is the only proof of ownership.
Online References§
Suggested Books for Further Studies§
- “Financial Instruments: Identification, Measurement, Presentation, and Disclosure” by Gordon L. Johnson.
- “Understanding Business Law” by Jason Ellis and Melissa Simpson.
- “Introduction to International Trade Finance” by Andrew Fight.
Accounting Basics: “Payable to Bearer” Fundamentals Quiz§
This comprehensive guide aims to provide a clear understanding of the term “Payable to Bearer,” exploring its definition, examples, related terms, and more. The included quiz further reinforces the foundational knowledge essential for mastering this accounting concept.
