Drawee

What Is a Drawee?

A check or bill of exchange maker is referred to as the "drawer," and the recipient of the payment is referred to as the "drawee" or "acceptor." 

The acceptor is the person or other organization that pays the check owner, the check maker is the drawer, and the check recipient is the payee. The drawee of the deposited check is typically your bank or a check-cashing business.

An example of this is when you cash a check. Your employer, who wrote the review, is the drawer, the bank that cashed it is the drawee, and you are the payee.

In financial transactions, banks frequently serve as the acceptor; however, there are specific situations where check cashing services or retail businesses can act in that capacity.

Acceptors do not give or take any money but rather; transfer the funds from the payor to the payee, simplifying the transaction process. The bank of the payor is often the former.

A financial institution that manages a deposit account containing the payer's funds is frequently in the position of drawee. Consumer banks often carry out this action, taking money out of a depositor's account to cover the check's stated debt.

The retail establishment becomes the drawee if coupons are utilized in a retail transaction, such as at a grocery shop.

Apart from banks, other organizations that can act as acceptors include wire transfers, money orders, and check-cashing businesses. 

It is crucial to remember that companies could demand processing fees to enable and process the transaction.

Usually, money orders serve as a bill of exchange. The entity that receives the monies from the depositor or payer presents the bill of exchange to the payee in such a transaction and is honored by them.

Note that an acceptor is not usually a financial or banking organization. The use of coupons is a frequent illustration.

Functions Of Drawee or Acceptor

Its main duty is to transfer money from a payer's account (sometimes called a drawer or depositor) to the payee's account (the receiver of the funds or the natural person to whom the funds are payable).

Apart from banks, other organizations that can act as acceptors include wire transfers, money orders, and check-cashing businesses. 

Usually, money orders act as a bill of exchange (the acceptor's role). The entity that receives the monies from the depositor or payer presents the bill of exchange to the payee in such a transaction and is honored by them.

A draft's drawer may direct a third-party acceptor to pay a certain sum to a payee upon presentation of the draft.

The person on whom a bill of exchange is drawn for acceptance is known as the acceptor. He is typically the purchaser. On the due day, he must give the drawer the whole amount of the bill of exchange

The person who draws or creates the bill and sends it to the payer or acceptor for acceptance is known as the drawer. The bill becomes a Bills Receivable for the drawer and a Bills Payable for the acceptor or payee once it has been accepted.

In some situations, the acceptor could request that the drawer cancel the bill and draw a different one for a lengthy period. This is referred to as a billing renewal. He also pays interest on top of the original amount for long periods.

Some basic journal entries for an initial transaction between the drawee and the drawer are 

Case 1: When The Goods Are Purchased And Sold

Journal entry for drawer (goods sold on credit):

Journal entry for drawee (goods purchased on credit): 

Case 2: The Bill Is Drawn And Accepted

Journal entry for drawer (acceptance received): 

Journal entry for drawee (acceptance given):

The difference is explained below: 

Example Of Drawee

To better understand the role and meaning of acceptor, let's break down the following scenario.

Let's assume John is an employee working in the company Easy Ltd. And as per the company's guidelines, the employees are paid on the 31st of every month. So, John received his paycheck on the 31st of the current month. 

He took the cheque and deposited it to the bank to transfer the amount from the company's account to his account. Consequently, the bank deducted the check's value from the company's accounts and paid in the personal account of John. 

In the above scenario, the company is the employer, and the check maker is known as the drawer; the bank that transferred the funds and acted as the intermediary is known as the drawee, and John, who received the payment as the payee.  

Another example is when Sam wants to send some amount through a bank transfer to his relative. Then the bank through which he transfers the amount to the relative (payee) is called the drawee. Here, in this case, Sam is the drawer. 

Free Resources

To continue learning and advancing your career, check out these additional helpful WSO resources:

• Trading Partner Agreement 
• Transaction Risk
• Types of Mergers
• Void Transactions
• Yellow Knight