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Dishonour of a Bill


A bill is said to have been dishonoured when the drawee fails to make the payment on the date of maturity. In such case, liability of the acceptor is restored. So, the entries made on the receipt of the bill should be reversed.

For example, Anu received bill of exchange duly accepted by Meenu, which was dishonoured. The entries of dishonour will be as follows in the books of Anu (receiver):

When the bill was kept by Anu with her till maturity
Meenu's A/c Dr.
To Bill Receivables A/c

When the bill had been endorsed by Anu in favour of Soniya
Meenu's A/c Dr.
To Soniay's A/c

​When the bill was discounted by Anu with his bank
Meenu's A/c Dr.
To Bank A/c

When the bill was sent for collection by Anu
Meenu's A/c Dr.
To Bill Sent for Collection A/c

The following example show the accounting treatment for Dishonour oh bills:

Problem#2
On Jan 01, 2006 Shieba sold goods to Vishal for Rs. 10,000 and drew upon him a bill of exchange for 2 months. Vishal accepted the bill and returned it to Shieba. On the date of maturity the bill was dishonoured by Vishal. Record the necessary entries in all the caseslisted below in the books of Shieba and Vishal:
  1. When the bill kept by Shieba till its maturity;
  2. When the bill is discounted by Shieba for Rs. 200;
  3. When the bill is endorsed to Lal Chand by Shieba.
Solution
  1. When the bill was kept by Shieba till its maturity.

Date

Particulars

L.F.

Debit

Amount

Rs.

Credit

Amount

Rs.

2006

Jan 01

 




Jan 01

 

 

 


Mar 04

Vishal's A/c dr.

To Sales A/c

(Sold goods to Vishal's on credit)

 


Bills Receivable A/c Dr.

To Vishal's A/c

(Received Vishal's acceptance )

 


Vishal'sA/c Dr.

To Bills Receivable A/c

(Vishal dishonoured his acceptance)

 

10,000

 

 

 


10,000

 

 

 

 

10,000

 

 



10,000

 

 

 


10,000

 

 

 

 

10,000

  1. When the bill was discounted by shieba

Date

Particulars

L.F.

Debit

Amount

Rs.

Credit

Amount

Rs.

2006

Jan 01

 

 

Jan 01

 

 

 

 

Jan 01

 

 

 

 

 

Mar 04

Vishal'sA/c dr.

To Sales A/c

(Sold goods to Vishal's)

 

Bills Receivable A/c Dr.

To Vishal's A/c

(Received Vishal's acceptance)


Bank A/c Dr.

Discount A/c Dr.

To Bills Receivable A/c

(Vishal's Bill dishonoured his acceptance)

 

Vishal A/c Dr.

To Bank A/c

(Discounted Bill Dishonoured by Vishal)

 

10,000

 

 

 

10,000

 

 

 

 

9,800

200

 

 

 

 

10,000

 



10,000

 

 

 

10,000

 

 

 

 

 

10,000

 

 

 

 

10,000

 

  1. When the bill was endorsed by Shieba to Lal Chand

Date

Particulars

L.F.

Debit

Amount

Rs.

Credit

Amount

Rs.

2006

Jan 01

 

 

Jan 01

 

 

 

 

Jan 01

 

 

 

Mar 04

Vishal'sA/c dr.

To Sales A/c

(Sold goods to Vishal's)

 

Bills Receivable A/c Dr.

To Vishal's A/c

(Received Vishal's acceptance)

 

 

Lal Chand's A/c Dr

To Bills Receivable A/c

(Vishal's acceptance endorsed in favour of Lal Chand)

 

Vishal A/c Dr.

Lal Chand A/c

(Endorsed bill Dishonoured by Vishal)

 

10,000

 

 

 

10,000

 

 

 

 

10,000

 

 

 

10,000

 



10,000

 

 

 

10,000

 

 

 

 

10,000

 

 

 

10,000

 

Whereas, in the book of Vishal, the following entries will be recorded
 
Books of Vishal- Journal

Date

Particulars

L.F.

Debit

Amount

Rs.

Credit

Amount

Rs.

2006

Jan 01

 

 

Jan 01

 

 


Jan 04

Purchases A/c Dr.

To Sheiba's A/c

(Purchased goods from Shebia's)

 

Sheiba's A/c Dr.

To Bills Payable A/c

(Accepted Shebia's Draft)

 

Bills Payable A/c Dr.
To Sheiba's A/c

(acceptance in favour of Sheiba's dishonoured)

 

10,000

 

 

 

10,000

 

 

 

10,000

 

10,000

 

 

 

10,000



 

10,000





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