CMA Intermediate · Financial Accounting · Bills of Exchange
Anand Traders holds a Rs 24,000 bill accepted by Bose & Co. The bill is dishonoured on the due date. Which is the correct journal entry in Anand Traders' books if the bill had been retained till maturity (no discounting or endorsement)?
The correct entry is debit Bose & Co and credit Bills Receivable for Rs 24,000. When a retained bill is dishonoured, the asset bills receivable ceases and the acceptor again becomes a debtor for the same amount.
- ABose & Co Dr Rs 24,000 to Bills Receivable Rs 24,000Correct
- BBills Receivable Dr Rs 24,000 to Bose & Co Rs 24,000
- CBank Dr Rs 24,000 to Bills Receivable Rs 24,000
- DBose & Co Dr Rs 24,000 to Bank Rs 24,000
Explanation
Dishonour of a retained bill reinstates the debtor and removes the receivable: debit Bose & Co, credit Bills Receivable for Rs 24,000. The reverse entry (option B) is the entry on receiving the bill, and no cash moves in this case.
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