Dishonour of Bill – Meaning
Dishonour of the bill , means that the drawee of the bill of exchange on the date of maturity is not able to make the payment for the bill. In such a situation, the holder of the bill can then recover the amount from the drawer , or any other previous endorsers.
Journal Entries for Dishonour of Bill
In Drawer’s Books:
(i) Case 1: Bill is retained by drawer till maturity and dishonoured on due date :
Drawee’s A/c Dr
(Since money is now receivable from Drawee, so Drawee Account is Debited)
To Bills Receivable A/c
(Since Bills Receivable is no longer an asset, it is Credited)
(Being bill dishonoured)
(ii) Case 2: Bill dishonoured after being discounted by the bank
Drawee’s A/c Dr
(Since money is now receivable from Drawee, so Drawee Account is Debited)
To Bank A/c
(Since money is now payable to the Bank, so Bank Account is Debited)
(Being bill dishonoured and amount paid to bank)
(iii) Case 3: Endorsed bill is dishonoured
Drawee’s A/c Dr
(Since money is now receivable from Drawee, so Drawee Account is Debited)
To Endorsee’s A/c
(Since money is now payable to the Endorsee, so Endorsee Account is Credited)
(Being endorsed bill dishonoured)
(iv) Case 4: Bill dishonored which was sent to the bank for collection
Drawee’s A/c Dr
(Since money is now receivable from Drawee, so Drawee Account is Debited)
To Bills Sent for Collection A/c
(At the time of sending to the bank the bills which were Sent for Collection was debited , so it is Credited)
(Being bills sent for collection dishonoured)
Journal Entries for Dishonour of Bill
In Drawee’s Books:
Bills Payable A/c Dr
(Since Bills Payable is no longer a Liability, it is Debited)
Noting Charges A/c DR
(Since Noting Charges are an expense , it is Debited)
To Drawer’s A/c
(Since money is now payable Drawer, so Drawer Account is Credited)
To Bank A/c
(Since Noting Charges are paid through Bank , it is Credited)
( Credit granted to the creditor for the amount of bill and bill being dishonoured)
JOURNAL ENTRY IN THE BOOKS OF DRAWER – DISHONOUR OF BILL WHEN DRAWER IS THE HOLDER OF THE BILL
Accounting for Bills of Exchange- Question 1:
Mr.H drew a Bill of Rs. 7000 and then it was accepted by Mr.S ,and it is payable after 6 months. The Bill was dishonoured on the due date. Mr.H paid Rs. 500 as noting charges. What would be the Journal entry for dishonour of Bill in the books of Mr.H ?
Explanation:
S A/c Dr. 7,500
To Bills Receivable A/c 7,000
To Cash A/c 500
JOURNAL ENTRY IN THE BOOKS OF DRAWEE – DISHONOUR OF BILL WHEN DRAWER IS THE HOLDER OF THE BILL
Accounting for Bills of Exchange- Question 2:
A Bill of Rs. 10000 was drawn by Mr.W and accepted by Mr.A which is payable after 3 months. Then the Bill was dishonoured on the due date. Also, Mr.W paid Rs. 1000 as noting charges. What would be the Journal entry for dishonour of Bill in the books of A ?
Explanation
Bills Payable A/c Dr. 10,000
Noting Charges A/c Dr. 1,000
To W A/c 11,000
JOURNAL ENTRY IN THE BOOKS OF DRAWER – DISHONOUR OF BILL WHEN BANK IS THE HOLDER OF THE BILL
Accounting for Bills of Exchange- Question 3:
Bhanu drew a bill of Rs. 10000 and accepted by Ankush and is payable after 4 months. Bhanu then discounted the bill with his Bank at Rs.9900. The bill was dishonoured on the due date and also the Bank paid Rs.300 as noting charges. What would be the Journal entry for the dishonour of bill in the books of Bhanu ?
Explanation:
Ankush A/c Dr. 10300 ( 10000 + 300 )
To Bank A/c 10300
Note: Ankush ‘s A/c is debited since the Bill was dishonoured on the due date, and Bhanu will recover the amount along with noting charges paid by Bank from Ankush .
JOURNAL ENTRY IN THE BOOKS OF DRAWEE – DISHONOUR OF BILL WHEN BANK IS THE HOLDER OF THE BILL
Accounting for Bills of Exchange- Question 4:
Mr.D drew a Bill of Rs.11300 and it was accepted by Mr.V ,and which is payable after 4 months and then Mr.D discounted the Bill with his Bank at Rs.11000 . On the due date, the Bill was then dishonoured and the Bank paid Rs. 200 as noting charges. What would be the Journal entry for the dishonour of Bill in the books of Mr.V ?
Explanation:
Bills Payable A/c Dr. 11300
Noting Charges A/c Dr. 200
To D A/c 11500
JOURNAL ENTRY IN THE BOOKS OF DRAWER – DISHONOUR OF BILL WHEN ENDORSEE IS THE HOLDER OF THE BILL
Accounting for Bills of Exchange- Question 5:
Mr.X drew a Bill of Rs. 12000 and later it was accepted by Mr.Y which is payable after 1 months. Mr.X endorsed the Bill to his creditor Mr.Z . then on the due date, the Bill was dishonoured and Mr.Z paid Rs. 200 as noting charges. What would be the Journal entry for the dishonour of Bill in the books of Mr.X ?
Explanation:
Y A/c Dr. 12,200 ( 12000 + 200 )
To Z A/c 12,200
JOURNAL ENTRY IN THE BOOKS OF ENDORSEE- DISHONOUR OF BILL WHEN ENDORSEE IS THE HOLDER OF THE BILL
Accounting for Bills of Exchange- Question 6:
Mr.H drew a Bill of Rs. 7100 and then it was accepted by Mr.R which is payable after 4 months. Mr.H then endorsed the bill to his creditor, Mr.D . On the due date, the Bill was then dishonoured and Mr.D paid Rs. 900 as noting charges. What would be the Journal entry for the dishonour of Bill in the books of Mr.D ?
Explanation:
H A/c Dr. 8,000 ( 7100 + 900 )
To Bills Receivable A/c 7,100
To Cash A/c 900
Chapter 8 – Bill of Exchange Accountancy Class 11 Notes