Q.Rajesh sold goods on credit to Sulochana for ₹ 25,000. Rajesh draws a bill for ₹ 25,000 on Sulochana for 3 months. Rajesh discounted the bill with his bank @ 10% p.a. on the same day. On the due date of bill, Sulochana requested Rajesh to accept ₹ 5,000 including ₹ 1,000 for interest and to draw a bill for the balance for 3 months. Rajesh agreed to this proposal. One month before the due date, Sulochana retired the bill for ₹ 20,200.
Pass necessary Journal Entries in the books of Rajesh.

In Rajesh's books: record the credit sale, receipt and discounting of the bill (discount ₹625), its dishonour on the due date (bank recovers ₹25,000 from Rajesh), interest of ₹1,000 due on renewal, part payment of ₹5,000, a new bill of ₹21,000, and finally its early retirement for ₹20,200 allowing a rebate of ₹800.

Working Notes

• Discount on discounting the first bill = 25,000 × 10/100 × 3/12 = ₹625; bank credits Rajesh 25,000 − 625 = ₹24,375.
• On renewal Sulochana pays ₹5,000 which includes ₹1,000 interest, so ₹4,000 goes toward the old bill's principal. Balance of old bill = 25,000 − 4,000 = ₹21,000 → amount of the new bill.
• New bill ₹21,000 retired one month early for ₹20,200 → rebate (discount) allowed = 21,000 − 20,200 = ₹800.

Journal Entries in the books of Rajesh