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

Mohan Ltd. holds a bill of Rs 30,000 accepted by Kiran Stores, which was dishonoured on maturity. Noting charges of Rs 200 were paid by Mohan Ltd. What is the journal entry in Mohan Ltd.'s books?

Mohan Ltd. debits Kiran Stores with Rs 30,200, being the bill of Rs 30,000 plus noting charges of Rs 200. It credits Bills Receivable with Rs 30,000 to cancel the bill and credits Cash with Rs 200 for the charges paid.

  1. AKiran Stores A/c Dr 30,000; To Bills Receivable A/c 30,000, and noting charges ignored
  2. BBills Receivable A/c Dr 30,200; To Kiran Stores A/c 30,200
  3. CKiran Stores A/c Dr 30,200; To Bills Receivable A/c 30,000; To Cash A/c 200Correct
  4. DKiran Stores A/c Dr 30,200; To Bills Receivable A/c 30,200

Explanation

On dishonour the acceptor's account is debited with the bill amount plus noting charges: 30,000 + 200 = 30,200. Bills Receivable is credited with 30,000 and Cash with the 200 paid. Option with a single credit of 30,200 to Bills Receivable wrongly credits the bill with the charges.

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