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CA Foundation · Accounting · Bills of Exchange and Promissory Notes

A bill of ₹80,000 drawn by Gupta on Verma was dishonoured on the due date. Noting charges of ₹500 were paid by Gupta, who is the holder. What entry does Gupta make on dishonour?

Gupta debits Verma ₹80,500, being the bill ₹80,000 plus noting charges ₹500, and credits Bills Receivable ₹80,000 and Cash ₹500. The dishonour revives the debt of the drawee, including the recoverable charges.

  1. AVerma A/c Dr. 80,500 to Bills Receivable A/c 80,000 and Cash A/c 500Correct
  2. BVerma A/c Dr. 80,000 to Bills Receivable A/c 80,000
  3. CBills Receivable A/c Dr. 80,500 to Verma A/c 80,500
  4. DVerma A/c Dr. 80,500 to Bills Receivable A/c 80,500

Explanation

On dishonour, the drawee becomes a debtor again for the bill amount, so Verma is debited ₹80,000. Noting charges paid are recoverable from him, so he is debited another ₹500, total ₹80,500. Credits are Bills Receivable ₹80,000 and Cash ₹500. Option B omits the noting charges.

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