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Insolvency of the Drawee

Insolvency of a person means that he is unable to pay his liabilities. This means that the bill accepted by him will be dishonoured.

In the books of the drawer


When it is known that the drawee has become insolvent, entry for dishonour of his acceptance should be passed. Later, if any amount is received from his estate. Such an amount should be adjusted against his account and the balance is treated as bad debts.

The journal entries in this case are as follows:

Illustration 7


X sells goods for ₹ 2,000 to Y and draws a bill for three months for the amount. Y accepts it and returns it to X. At the end of three months, Y was declared insolvent. Only 50% of the amount due was realised from Y. Give necessary journal entries in the books of X and Y.



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