Dishonour of Bill

When the drawee (a person who is liable to pay) is not able to make the payment on the date of maturity of a bill, a bill is said to be dishonoured. In this situation liability of drawee is restored. Dishonour of a bill can be either by non-acceptance or non-payment. A dishonoured bill is equivalent to the bounced cheque.

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Dishonour by Non-Acceptance

Bill of exchange requires acceptance by the drawee when it is presented, however, if on presenting the bill of exchange, it gets non-acceptance, it will amount to dishonour.

Browse more Topics under Bill Of Exchange

• Meaning of Bill of Exchange and Promissory Note
• Maturity, Discounting, and Endorsement of Bill
• Basics of Accounting Treatment
• Bills Receivable, Bills Payable Books and Accommodation Bills
• Renewal and Retiring of the Bill

Dishonour by Non-Payment

When the drawee of the bill of exchange commit default in making the payment of the bill on maturity to the drawer, it is said to be dishonoured of a bill of exchange by non-payment.

Possible reasons why the bill is dishonoured by non-payment?

• Due to insufficient funds in the drawee’s a/c.
• The drawee is unable to pay because of insolvency, or
• The drawee simply does not want to pay

When the bill gets dishonoured, entries that were made at the time of receipt of a bill are reversed.

Solved Examples for You

Example 1

Rashi (drawer) received a bill of exchange duly accepted by Ayushi (drawee), which was dishonoured. The entries of dishonour will be as follows in the books of Rashi (drawer):

When the bill was kept by Rashi till maturity

Ayushi a/c	Dr
To  Bill Receivables A/c

When the bill had been endorsed by Rashi in favour of Raghav

Ayushi a/c	Dr
To  Raghav  A/c

When the bill was discounted by Rashi with her bank

Ayushi a/c	Dr
To  Bank  A/c

When the bill was sent for collection by Rashi

Ayushi a/c	Dr
To Bill Sent for Collection A/c

Example 2

On April 01, 2018 Pinky sold goods to Shreya for Rs. 20,000 and drew upon her a bill of exchange for 3 months. Shreya accepted the bill and returned it to Pinky. On the date of maturity, the bill was dishonoured by Shreya. Entries in all the cases listed below in the books of Pinky and Shreya will be:

Case 1: When the bill is kept by Pinky till its maturity;

Books of Pinky

Journal Date	Particulars		L.F	Amount	Amount
April 01, 2018	Shreya a/c	Dr		20,000
	To  Sales  A/c				20,000
	(Sold goods to Shreya)
April 01, 2018	Bills Receivable A/c	Dr		20,000
	To Shreya				20,000
	(Received Shreya’s acceptance)
July 04, 2018	Shreya a/c	Dr		20,000
	To Bills Receivable A/c				20,000

 Case 2: When the bill is discounted by Pinky with the bank for Rs. 19,600

Books of Pinky

Journal Date	Particulars		L.F	Amount	Amount
April 01, 2018	Shreya a/c	Dr		20,000
	To  Sales  A/c				20,000
	(Sold goods to Shreya)
April 01, 2018	Bills Receivable A/c	Dr		20,000
	To Shreya				20,000
	(Received Shreya’s acceptance)
April 01, 2018	Bank  a/c	Dr		19,600
	Discount a/c	Dr		400
	To Bills Receivable A/c				20,000
	(Bill discounted by Pinky in the bank)
July 04, 2018	Shreya a/c	Dr		20,000
	To Bank a/c				20,000
	(Discounted bill dishonoured by Shreya)

 

When the bill is endorsed to Navin by Pinky.

 Books of Pinky

Journal Date	Particulars		L.F	Amount	Amount
April 01, 2018	Shreya a/c	Dr		20,000
	To  Sales  A/c				20,000
	(Sold goods to Shreya)
April 01, 2018	Bills Receivable A/c	Dr		20,000
	To Shreya				20,000
	(Received Shreya’s acceptance)
April 01, 2018	Navin  a/c	Dr		20,000
	To Bills Receivable A/c				20,000
	(Shreya acceptance endorsed in favour of Navin)
July 04, 2018	Shreya a/c	Dr		20,000
	To Navin a/c				20,000
	(Endorsed bill dishonoured by Shreya)

 Whereas, in the book of Shreya, the following entries will be recorded

Books of Shreya

Journal Date	Particulars		L.F	Amount	Amount
April 01, 2018	Purchases a/c	Dr		20,000
	To  Pinky  A/c				20,000
	(Purchased good from Pinky)
April 01, 2018	Pinky a/c	Dr		20,000
	To Bills Payable				20,000
	(Accepted Pinky’s draft)
July 04, 2018	Bills Payable a/c	Dr		20,000
	To Pinky a/c				20,000
	(Acceptance in favor of Pinky dishonoured)