Accountancy · Ch 8 — Accounting for Bills of Exchange

Dishonour of a Bill

8.8

A bill is said to be dishonoured when the drawee fails to make payment on the date of

maturity. When this happens the liability of the acceptor is restored, so the entries made

on receipt of the bill are reversed in the drawer's books.

The reversal entry in the drawer's books depends on what the drawer had done with the bill:

Situation	Entry in the drawer's books
The bill was kept till maturity	Drawee's A/c Dr.; To Bills Receivable A/c
The bill had been endorsed to a creditor	Drawee's A/c Dr.; To Endorsee's (Creditor's) A/c
The bill had been discounted with the bank	Drawee's A/c Dr.; To Bank A/c
The bill had been sent for collection	Drawee's A/c Dr.; To Bills Sent for Collection A/c

For example, if Anju had received a bill accepted by Manju which is dishonoured, Anju debits

Manju's account and credits Bills Receivable / the endorsee / the bank / Bills Sent for …