Dishonour Of Bill
Dishonour of bill means when the payment was not made on the due date. In case of dishonour of a bill there will be following entries –
(A) In the books of seller –
If the bill was retained till the maturity
Buyer’s A/c Dr. xxx
To Bills Receivable A/c xxx
If the bill was discounted with the bank
Buyer’s A/c Dr. xxx
To Bank A/c xxx
If the bill was endorsed in favour of a third party
Buyer’s A/c Dr. xxx
To Endorsee’s A/c xxx
(B) In the books of buyer –
Bills Payable A/c Dr. xxx
To Seller’s A/c xxx
Noting Charges
Noting means recording of the fact of dishonour by a Notary Public. Noting must specify the date of dishonour, the reason, noting charges charged by the Notary. The charges made to Notary public in this regard are called the noting charges.
(A) In the books of seller –
If the noting charges are made by drawer(seller) himself
Drawee’s A/c Dr. xxx
To Bills Receivable A/c xxx
To Cash A/c xxx
If the bill was sent for collection to the bank for collection and bank has paid the noting charges
Drawee’s A/c Dr. xxx
To Bills sent for collection A/c xxx
To Bank A/c xxx
If the bill was discounted with the bank
Drawee’s A/c Dr. xxx
To Bank A/c xxx
If the bill was endorsed in favour of a third party
Drawee’s A/c Dr. xxx
To Endorsee’s A/c xxx
Renewal Of a Bill
When a bill is cancelled and a new (fresh) bill is drawn for another period on the request from Drawee (The person who has to pay the amount) is called renewal of a bill.
Accounting entries in this regard will be as follows –
(A) In the books of seller –
On cancellation of old bill
Buyer(Drawee’s) A/c Dr. xxx
To Bills Receivable A/c xxx
On making due the interest
Buyer(Drawee’s) A/c Dr. xxx
To Interest A/c xxx
On receiving a portion of the amount due
Bank A/c Dr. xxx
To Buyer(Drawee’s) A/c Dr. xxx
On acceptance of a fresh bill
Bills Receivable A/c xxx
To Buyer(Drawee’s) A/c Dr. xxx
(B) In the books of buyer –
On cancellation of old bill
Bills Payable A/c Dr.
To (Seller)Drawer’s A/c
On making due the interest
Interest A/c Dr. xxx
To (Seller)Drawer’s xxx
On receiving a portion of the amount due
(Seller) Drawer’s A/c Dr. xxx
To Bank A/c xxx
On acceptance of a fresh bill
(Seller) Drawer’s A/c Dr. xxx
To Bills Payable A/c xxx
Insolvancy Of The Acceptor Of a Bill
In case of insolvency of the acceptor of the bill i.e. the person who has to make the payments, either partial amount is recovered or nothing is recovered.
In such case the accounting treatment will be as follows –
(A) In the books of seller –
Such amount is debited to Bad Debts A/c
Drawee(Buyer) A/c Dr. xxx
To Bills Receivable A/c xxx
Bank A/c Dr. xxx
Bad Debts A/c xxx
To Drawee(Buyer) A/c xxx
(B) In the books of buyer –
Such amount is credited to Deficiency A/c
Bills Payable A/c Dr. xxx
To Drawer (Seller) A/c xxx
Drawer(Seller) A/c Dr. xxx
To Bank A/c Dr. xxx
To Deficievncy A/c xxx
Retiring a Bill
When the payment for a bill is made before it becomes due, it is termed as Retirement of a bill. In this situation an interest is allowed by the holder of the bill to the drawee at an agreed rate of interest for the unexpired period of the bill as a consideration for the premature payment. It is called Rebate.
Such rebate is an income for the drawee and expenses for the payee.
Accounting Treatment
(A) In the books of holder (Drawee or Endorsee) –
Bank A/c Dr. xxx
Rebate on Bill A/c Dr. xxx
To Bills Receivable A/c xxx
(B) In the books of Drawee –
Bills Payable A/c xxx
To Bank A/c xxx
To Rebate on Bill A/c xxx
Accomodation Bill
- Accommodation bill refer to the bills which are drawn, accepted or endorsed without any consideration.
- It is drawn and accepted to meet the financial needs of the drawer / drawee or both temporarily.
- On dishonour of such bill, drawer can not file suit against the drawee because drawee is not liable to drawer.
