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Noting Charges


A bill of exchange should be duly presented for payment on the date of its maturity. The drawee is absolved of his liability if the bill is not duly presented. Proper presentation of the bill means that it should be presented on the date of maturity to the acceptor during business working hours. To prove that the bill was dishonoured, despite its due presentation, it may preferably to be got noted by Notary Public. Noting authenticates the fact of dishonour. For providing this service, a fee is charged by the Notary Public which is called Noting Charges.

 

The following points are generally noted by the Notary:
  • Date, fact and reasons of dishonour;

  • If the bill is not expressly dishonoured, the reasons why he treats it as dishonoured and;

  • The amount of noting charges.

The entries recorded for noting charges in the drawer's book are as follows:

When Drawer himself pays
Drawee's A/c Dr.
To Cash A/c

Where endorsee pays
Drawee's A/c Dr.
To Endorsee A/c

When the bank pays on discounted bill
Drawee's A/c Dr.
To Bank A/c

When the bank pays in the event of sending the bill for collection to the bank
Drawee's A/c Dr.
To Bank A/c

 

It may be kept in mind that whosoever pays the noting charges; ultimately these have to be borne by the drawee. That is why the drawee is invariably debited in the drawer's books. This is because he is responsible for the dishonour of the bill and, hence, he has to bear these expenses. For recording the noting charges in his book the drawee opens Noting Charges Acccount. He debits the Noting Charges Account and credits the Drawer's Account.

 

Problem#3
Azad sold goods for Rs. 15,000 to Bunty and immediately drew a bill upon him on Jan. 01, 2006 payable after 3 months. On maturity the bill was dishonoured and Rs. 50 were paid by the holder of the bill as noting charges. The journal entries will be recorded in the books of Azad and Bunty as given below under the following circumstances:
  1. When the bill was kept by Azad till maturity.
  2. When the bill was discounted by Azad with his bank immediately @ 12% p.a.
  3. When the bill was endorsed by Azad in favour of his creditor Chitra.
In the books of Azad, entries will be recorded as:
  1. When the bill was retained till its maturity
Books of Azad- Journal

Date

Particulars

L.F.

Debit

Amount

Rs.

Credit

Amount

Rs.

2006

Jan 01

 

 

 

Jan 01

 

 


Apr 04

Bunty's A/c dr.

To Sales A/c

(Sold goods to Bunty's)

 


Bills Receivable A/c Dr.

To Bunty's A/c

(Received Bunty's acceptance )

 

Bunty's A/c Dr.

To Bills Receivable A/c Dr.

To Cash A/c

(Bunty dishonoured his acceptance and

paid Rs. 50 as noting charges)

 

15,000

 

 

 


15,000

 

 

 

15,000

50

 

15,000

 

 

 

 

15,000

 

 

 


15,050

 

  1. When the bill was discounted with the bank.

Date

Particulars

L.F.

Debit

Amount

Rs.

Credit

Amount

Rs.

2006

Jan 01

 

 

Jan 01

 

 

 


Jan 01

 

 




Apr. 04

 

Bunty's A/c dr.

To Sales A/c

(Sold goods to Bunty's)

 

Bills Receivable A/c Dr.

To Bunty's A/c

(Received Bunty's acceptance payable after three months )

Bank A/c Dr.

Discount A/c Dr.

To Bills Receivable A/c Dr.

(Bunty acceptance discounted)

 

Bunty's A/c Dr.

To Bank A/c

(Bunty dishonoured his acceptance on maturity

and bank paid noting charges)

 

15,000

 

 

 

15,000

 

 

 


14,550

    450

 

 

 


15,050

 



15,000

 

 

 

15,000

 

 

 

 



15,000

 

 

 

15,050

  1. When the bill was endorsed to Chitra

Date

Particulars

L.F.

Debit

Amount

Rs.

Credit

Amount

Rs.

2006

Jan 01

 

 

Jan 01

 

 

 


Jan 01

 

 

 

 

Apr04

Bunty'sA/c dr.

To Sales A/c

(Sold goods to Bunty's)

 

Bills Receivable A/c Dr.

To Bunty's A/c

(Received Bunty's acceptance)

 


Chitra's A/c Dr

To Bills Receivable A/c

(Bunty's acceptance endorsed in favour of Chitra)

 


Bunty's A/c Dr.

To Chitra's A/c

(Bunty dishonoured his cceptance on maturity and chitra paid Rs. 50 as noting charges)

 

15,000

 

 


15,000

 

 

 


15,000

 

 

 

 

15,050

 

15,000

 

 


15,000

 

 

 


15,000

 

 

 

 

15,050

 


The following journal entries will be made in the books of Bunty in all the three cases.
Book of Bunty- Journal

Date

Particulars

L.F.

Debit

Amount

Rs.

Credit

Amount

Rs.

2006

Jan 01

 

 


Jan 01

 

 

 

Apr 04

Purchases A/c Dr.

To Azad's A/c

(Purchased goods from Azad's)

 

Azad's A/c Dr.

To Bills Payable A/c

(Accepted Azad's Draft)

 

Bills Payable A/c Dr.

Noting Charghes a/c Dr.

To Azad's A/c

(acceptance in favour of Azad's dishonoured)

 

15,000

 



15,000

 


 

15,000
      50

 

15,000

 

 

 

15,000

 

 



15,050





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