Bills Account Reconstruction addresses bills receivable and bills payable when complete records are not available. Bills Receivable (bills held as debtors): Formula: Opening Bills + Bills Drawn - Bills Dishonored - Bills Discounted - Bills Received = Closing Bills. Bills Payable (bills owed to creditors): Formula: Opening Bills + Bills Accepted - Bills Paid - Bills Retired = Closing Bills. Calculation: Identify opening and closing bills from Statements of Affairs, Note bills drawn on debtors (increases receivable), Note bills accepted by firm (increases payable), Account for bills paid/received/discounted during period. Special Considerations: Dishonored bills revert to debtors status; amounts are reclassified from Bills Receivable to Debtors, Discounted bills represent cash realized but contingent liability remains, Retired bills are those paid off before maturity (possibly at discount), Bills endorsed to creditors reduce receivable. Treatment: Bills Receivable appears as Current Asset on Balance Sheet, Bills Payable appears as Current Liability on Balance Sheet, Contingent liability for discounted bills disclosed in notes. Documentary Evidence: Maintain bills register, Note endorsements and discounts, Record dishonors formally. Exam tip: Understand the mechanics of bills reconstruction; practice identifying which transactions affect bills accounts; know the distinction between bills and regular debtors/creditors; disclose contingent liabilities properly.