Book-Keeping and Accountancy · Ch 7 — Bills of Exchange
Dishonour of a Bill and Noting Charges
Dishonour of a Bill and Noting Charges
A bill is dishonoured when the drawee (acceptor) fails to pay it on the due date, whether the bill is still held by the drawer, has been discounted with a bank, endorsed to a creditor, or sent for collection. Dishonour cancels the special legal character of the bill as a negotiable instrument, and the underlying debt reverts to being an ordinary trade receivable/payable between the original drawer and drawee — with one important addition.
Noting charges. When a bill is dishonoured, the holder at that point (the drawer, the bank, or an endorsee) typically gets the fact of dishonour formally certified by a Notary Public, for a fee called noting charges — important legal evidence of the dishonour and the date it occurred. Whoever pays the noting charges is entitled to recover them from the drawee, since the dishonour was entirely the drawee's own default.
In the books of the Drawer, on dishonour (whether the bill was retained, discounted, or sent for collection):
| Particulars | Debit | Credit |
|---|---|---|
| Drawee's A/c ......Dr | Bill amount + noting charges | |
| To Bills Receivable A/c (if retained) / To Bank A/c (if discounted or sent for collection — the bank recovers the amount plus the noting charges it paid, from the drawer) | Bill amount + noting charges |
In the books of the Drawee (Acceptor), on dishonour:
| Particulars | Debit | Credit |
|---|---|---|
| Bills Payable A/c ......Dr | Bill amount | |
| Noting Charges A/c ......Dr | Noting charges | |
| To Drawer's A/c | Bill amount + noting charges |
Non-payment of a bill by the drawee (acceptor) on its due date; cancels the bill's special status, and the debt reverts to an ordinary trade receivable/payable, inc …
The fee paid to a Notary Public for formally certifying the fact and date of a bill's dishonour; ultimately recoverable from …