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Can an accountant treat GRN as a Bill of Exchange?

Accounting Entries 981 views 1 replies

narasimha murty

Managing partner

54 Points Posted on 31 January 2010

In this case there are three parties- Seller (of material), Buyer (of material) and Outsider(who discounts GRNs). There is one document i.e GRN.

Activity 1. Seller brings material to the Buyer

Activity2 Delivers material and takes a copy of Goods Received Note (GRN) issued by the buyer.

Activity 3 Seller again sells the GRN to an outsider for a discount.

Activity 4 The outsider buys several such GRNs from many sellers.

Activity 5 The outsider comes to the buyer on an appointed date (say monthly once).

Activity 6 The buyer pays the bearer (Outsider) the GRN

Therefore in my opinion the buyer has to make entries of GRNs in his accounts but should not operate the seller's account. In such case, can we consider GRN as a legally valid IOU?

Replies (1)

Jag Bhushan Sharma

Faculty in a B-School

633 Points Posted on 02 February 2010

In my opinion GRNs are not Negotiable instruments. It can be a valid document, if it is a trade practice. A problem can arise if sometime a GRN is stolen or misplaced. Then the seller will find it difficult to get payment from the buyer because the buyer will feel under threat of having to suffer losses on account of double payment. So I don't think it is a good practice.