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CMA Foundation · Fundamentals of Financial and Cost Accounting · Bills of Exchange

Gupta & Sons endorsed Rs 50,000 bill received from Verma to its creditor Joshi. The bill was dishonoured, and Joshi paid noting charges of Rs 300 and debited Gupta & Sons. In Gupta & Sons' books, which entry correctly records receipt of the dishonour notice?

Gupta & Sons debits Verma, the acceptor, and credits Joshi, the endorsee, with Rs 50,300. The amount is the bill of Rs 50,000 plus Rs 300 noting charges, since Joshi's debt is revived and Gupta & Sons can recover everything from Verma.

  1. AVerma A/c Dr 50,300; To Joshi A/c 50,300Correct
  2. BJoshi A/c Dr 50,300; To Verma A/c 50,300
  3. CBills Receivable A/c Dr 50,300; To Joshi A/c 50,300
  4. DVerma A/c Dr 50,000; To Joshi A/c 50,000

Explanation

Joshi's claim revives, so Joshi is credited 50,000 + 300 = 50,300. Gupta & Sons in turn recovers the full amount from the acceptor Verma, so Verma is debited 50,300. Debiting Joshi reverses the direction, and omitting charges understates the recoverable amount.

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